The president of the State Oil Company of Azerbaijan (SOCAR), Rovnag Abdullaev, has announced that the US$8 billion-plus Trans-Anatolian Gas Pipeline may be expanded four-fold from its initially planned volume of 8-16 billion cubic meters per year (bcm/y) to as much as 60 bcm/y.

SOCAR will build the pipeline (known as TANAP from its initials in Turkish) from the Georgian-Turkish border to the Turkish-Bulgarian border, with the participation of the Turkish firms BOTAS and TPAO. The initially estimated cost for its construction was $5 billion, but this has already risen informally to $6-8 billion, and the final cost will be known only after the conclusion of the actual construction contracts.

Abdullaev’s statement represents new formal support for the Trans-Caspian Gas Pipeline (TCGP) project to transport natural gas from Turkmenistan under the Caspian Sea to Azerbaijan and onwards to Europe. The European Union has been participating in talks towards this end jointly with Turkmenistan and Azerbaijan, and has stated its readiness to purchase 30 bcm/y from Turkmenistan.

That is the volume usually cited as necessary to make the TCGP commercially viable. For its part, Turkmenistan has stated its readiness to sell up to 40 bcm/y. According to Abdullaev, however, it is only “after the EU and Turkmenistan agree” that Azerbaijan can “think of which territory can be allocated for transit”.

Azerbaijan’s gas production will reach 30 bcm/y by 2015 and 50 bcm/y by 2025, according to Abdullaev, Not all of this production would go into the TANAP gas pipeline.

BP-Azerbaijan president Rashid Jevanshir had already stated that the second phase of development of the Shah Deniz offshore gas condensate field would require 24 bcm/y, and on that basis it had already been announced that the pipeline’s design capacity would be increased to such a volume.

The originally planned 16 bcm/y from Shah Deniz Two is contracted to supply 6 bcm/y to western Turkey and 10 bcm/y for transmission to Europe through an onwards route still in the process of selection.

While some press reports suggest that the World Bank’s pre-investment process for the TCGP has been suspended, others insist not just that the consultant for conducting the environmental impact statement is being actively selected, but also that the short list of five applicants for making cost estimations has been finally established.

The short list was expected two months ago with a final selection planned for late last month, but the large number of original applicants led to the imposition of more stringent requirements, delaying the process. The final five now have one month to submit their final proposals, focusing on the work in Turkmenistan and its offshore sector.

Meanwhile, it became known this week that Turkmenistan is accelerating the construction of the East-West Pipeline (EWP) across the southern part of the country up to the shore of the Caspian Sea, which would hook up with the TCGP to provide the natural gas for Europe from the rich deposits in the southeastern part of the country. The EWP would run 766 kilometers and be the largest-diameter pipe in the country, also with a compressor stations.

The EWP is expected to be commissioned in a little over three years at a cost of over $2 billion. Its volume is planned for 30 bcm/y, that is, exactly the volume projected for the TCGP. The additional 10 bcm/y that Turkmenistan would wish to sell to Europe would come from its offshore sector of the Caspian Sea, which several companies have already been developing.

Ukraine has also expressed an interest in receiving gas from the TCGP, and has even suggested that it might invest up to 790 million euros (US$1 billion) in the project (estimated at 10% of the project’s total cost), if transshipment could be arranged from the Kulevi terminal on Georgia’s Black Sea coast, the volume of which would have to be doubled to 20 bcm/y for the purpose.

Some observers are skeptical about Ukraine’s ability to make such an investment, and assert the expression of interest to be a negotiating ploy targeted at the ongoing talks with the Gazprom over the price of deliveries from Russia. Nevertheless, Ukraine has an interest in diversifying its suppliers, and Azerbaijan has an interest in diversifying its customers; and Ukraine could provide “in-kind” investment.

Specifically, the Khartsyzsk Pipe Plant (now part of the Metinvest Group, itself the major part of Rinat Akhmetov’s wholly-owned holding company System Capital Management) is nearly state-of-the-art, its pipes having been used for the Blue Stream gas pipeline under the Black Sea from Russia to Turkey.

Ukraine has even expressed an interest in purchasing part of SOCAR’s 80% stake in the TANAP gas pipeline, as the memorandum of understanding for its construction provides that SOCAR may distribute a portion of its share. Turkish companies beyond TPAO, which holds the other 20%, have also expressed such an interest.

SOCAR chief Abdullaev states, however, that his company’s a share in the project “can be given only to gas companies operating in [Azerbaijan]”, with a preference for those “which have their own gas volumes for transportation.” BP’s vice president for Shah Deniz development, Alastair Cook, has told Financial Times the company has received a direct offer to join the TANAP gas pipeline project. The Norwegian firm Statoil and the French company Total have also expressed their interest in acquiring stakes in the TANAP.

[First published in Asia Times Online, 19 April 2012.]