Azerbaijan’s Financial Investment Into European Energy Security Revealed

The amount of money invested thus far by Azerbaijan into the Southern Gas Corridor mega-gas pipeline project was disclosed last week for the first time this year. The Southern Gas Corridor Closed Joint Stock Company (CJSC), which manages and finances Azerbaijan’s interest in  the project, announced that it has invested $7.6 billion into a project that is expected to ultimately  cost $45 billion.

“The total amount of costs that the CJSC requires for the project between 2014 and 2020 is $12.3 billion,” an unidentified source familiar with the project told Azerbaijan’s Trend news agency. “As of September 15, around 62 percent, or $7.6 billion, of the required funds have been invested.”

Azerbaijan’s money for developing the Southern Gas Corridor throws weight behind two initiatives. One is the expansion of the South Caucasus Pipeline, one of three segments that make up the corridor. The other is financial support to Turkey for developing another of the three segments, namely the Trans Anatolian Pipeline (TANAP).

The South Caucasus Pipeline begins at the Shah Deniz 2 natural gas field, located at a depth of 50 to 500 meters beneath the Caspian Sea and about 70 km (44 miles) off the southeast coast of Azerbaijan’s capital city, Baku.

Natural gas will flow through the pipeline, which follows the same route as the Baku-Tbilisi-Ceyhan crude oil pipeline, starting at the Sangachal terminal near Baku, across the overland route, and into neighboring Georgia before ending at its border with Turkey. In far eastern Turkey, the pipeline transitions into TANAP, where it is linked to the Turkish gas distribution system.

The expansion of the South Caucasus Pipeline has broken ground for a new pipeline across Azerbaijan and the construction of two new compressor stations in Georgia, providing a three-fold increase in the volume of gas pumped through the pipeline, to over 20 billion cubic meters (706.3 billion cubic feet) per year. 

Azerbaijan and Georgia have already completed 96 percent of the construction and commissioning scope. In the first half of 2017, Azerbaijan welded approximately 370 km (230 miles) of pipe and completed 263 km (163.4 miles) of backfill, alongside finishing all five horizontal directional drilling operations.

TANAP comprises the middle and largest section of the corridor, running 1,800 km (1,119 miles) across Turkey from its eastern border with Georgia to its western border with Greece.  TANAP will deliver around six bcm (212 bcf) of gas to Turkey from a total initial capacity of 16 bcm (565 bcf), transported annually through the corridor. 

The estimated cost of TANAP is $9.2 billion. The State Oil Company of Azerbaijan Republic (SOCAR) has a 58 percent shareholding in the project, and is funding $6.1 billion of the route’s overall cost.  Turkey’s Botas Company controls 30 percent of TANAP, while British Petroleum oversees 12 percent.

More than 70 percent of the pipeline has already been constructed, and the first batch of natural gas will be delivered to European consumers in 2020, after TANAP’s precursor, the South Caucasus Pipeline, and the Trans-Adriatic Pipeline (TAP) – the third and western-most segment to the corridor, stretching through Greece and Albania before ending in Italy – are complete.

The Shah Deniz gas and condensate field, considered Azerbaijan’s largest, will be the only source, for now, to feed the corridor. Shah Deniz 2, the second section of the field, contains an estimated 1.2 trillion cubic meters (over 60 trillion cubic feet) of natural gas and 240 million tons of gas condensate reserves.