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Publications AnalyticalArticles AGRI'sprogressadvancesBrussels'andBaku'senergyagendas

WEDNESDAY, 08 JULY 2015

AGRI's progress advances Brussels' and Baku's energy agendas

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By Michael Tanchum(08/07/2015 issue of the CACI Analyst)

On June 24, 2015, Azerbaijan, Georgia and Romania signed a declaration committing to advance the AzerbaijanGeorgiaRomania Interconnector
(AGRI) project that will transport Azerbaijani LNG across the Black Sea to Romania for regasification and sale in European markets. The project
creates a theoretical possibility for Turkmen LNG to reach Europe through a modified use of the system. Of great geopolitical consequence, the option
requires a commensurate amount of political will to implement. Independent of potential Turkmen gas exports, the furtherance of the AGRI project
constitutes an important advance for Azerbaijans strategic policy to develop European Union stakeholders in its political sovereignty.

BACKGROUND:WhileoftenlesstoutedthantheTransAnatolianNaturalGasPipeline(TANAP)megaprojectthatwilltransportAzerbaijanigasacrossTurkeytoGreeceforsale
inEuropeanmarkets,theAGRIprojectconstitutesacriticalsecondpillarintheefforttocreatetransportationinfrastructureforAzerbaijaninaturalgastoreachEurope.In
September2010,twentyonemonthspriorAzerbaijanssigningabindingintergovernmentalagreementwithTurkeyontheconstructionofTANAP,thePresidentsofAzerbaijan,
Georgia,RomaniaandthePrimeMinisterofHungarydeclaredtheirsupportforthedevelopmentoftheAGRIProject.DuringthesummitofthefourheadsofstateinBaku,the
stateownedenergycompaniesofAzerbaijan(SOCAR),Georgia(GOGC),andRomania(Romgaz)signedaMemorandumofUnderstandingaswellasArticlesofAssociation
thatservedasthebasisfortheformationofacompanytooverseetheprojectsimplementation.
InJanuary2011,theSCAGRILNGProjectCompanySRLwasregisteredinRomaniawithSOCAR,GOGC,andRomgazastheshareholders.InMarch2011,thestateowned
HungarianpowercompanyMVMbecameashareholder,resultingineachofthefourstateownedfirmsmaintaininga25percentequityshare.In2012,theAGRILNGProject
CompanycontractedtheUKbasedengineeringfirmPenspentoconductafeasibilitystudyfortheproject.PenspenpresenteditsresultsinDecember2014and,accordingto
GOGC,theAGRILNGProjectCompanyapprovedtheresultsofthestudyinJanuary2015.
TheAGRIsystemwilltransportAzerbaijaninaturalgasviapipelinetoGeorgiasBlackSeacoastwherethegaswillbeliquefiedanddeliveredbytankeracrosstheBlackSeatoa
receivingterminalattheRomanianportofConstanta.TheLNGwillberegasifiedandtransmittedthroughRomaniasdistributionsystemtoHungaryfromwhereitcanalsobe
transportedtootherEuropeanmarkets.TheUS$5billionprojectwilltakenineyearstocompleteandwhenfullyoperationalwillhaveaninitialmaximumdeliverycapacityof8
bcmannually.

IMPLICATIONS:AgainstthebackdropoftheongoingUkraineconflictandRussiaseffortstoredirectgasflowstoaltersupplyanddemandbalancesinEUmarkets,aninter
ministerialmeetingwasheldintheRomaniancapitalBucharesttoexpeditethedevelopmentoftheAGRIproject,animportantelementintheEUsenergysecurityprogram.At
themeeting,theAzerbaijaniandRomanianenergyministers,theGeorgiandeputyenergyminister,andtheHungarianambassadortoRomania,issuedacommondeclarationof
theirsupportforthecontinuationoftheprojectbasedonthePenspenfeasibilitystudy.Themeetingwasalsoattendedbyrepresentativesofthefourrespectivenationalenergy
companiesaswellasrepresentativesofBPandtheEuropeanCommission.BPisthelargestshareholderinthePhaseIIdevelopmentofAzerbaijansShahDeniznaturalgas
fieldthatwilllikelysupplytheAGRIprojectwhiletheEuropeanCommissionhaslistedAGRIamongitsProjectsofCommonInterest.
AGRIisintendedtosecureRomaniaandHungarysgassuppliesaswellasdelivergastootherCentralandEasternEuropeanmarkets.WhenRussiacutgassuppliesto
Ukraineduringthe2009RussiaUkrainecrisis,Romanialostbetween3439percentofitsgassupplywhileHungarylostapproximately45percentofitssupply.WhileRomania
hassincereduceditsoverallgasconsumptionaswellasitsimportsfromRussia,Romaniasannualconsumptionstandsnowatapproximately12bcm.Hungarysannualgas
consumptionrateisroughly8.5bcm.Comprisingasignificantportionofeachnationsnaturalgassupplymix,thegasreceivedfromAGRIwillbeagamechangerforRomania
andHungarysreliabilityofsupply.FromHungarysexistinggashubatVrosfld,AzerbaijanigascouldthenenterotherCentralandEasternEuropeanmarketsthroughvarious
existingandproposedpipelines.
InhispressremarksaftertheAGRIinterministerialmeeting,RomaniasMinisterofEnergyAndreiGereamadeclearAGRIsgeopoliticalsignificance.WebelievethattheAGRI
projectisacomponentofthesoutherngascorridorthatmaymakeanimportantcontributiontotheEuropeanenergysecurity,saidGerea,addingthattheministershadalso
madeanagreementtocontinuethetechnicaldevelopmentoftheprojecttoincreaseitscapacity.IftheAGRIsystemscapacityisincreased,itcouldpotentiallyaccommodateLNG
exportsfromTurkmenistan.TurkmenistansparticipationintheSouthernGasCorridorhasbeenlongstymiedbyRussianandIranianoppositiontotheconstructionofthe
underseaTransCaspianPipelinebetweenTurkmenistanandAzerbaijan.
WiththesufficientexpansionofAGRIscapacity,itbecomespossibletoconsiderTurkmenistansparticipationintheSGCthroughtankerborneshipmentsofTurkmenLNG
deliveredfromTurkmenistansCaspiancoastalcityofTurkmenbashitoBaku.InAugust2013,theTurkishconstructionfirmGAPInaatbegana4yearportcomplexdevelopment
projectinTurkmenbashithatwillbeconnectedtoTurkmenistansmassiveGalkynyshfieldbyan800kmpipeline.
ThetransshipmentofTurkmenLNGtoEuropeviatheAGRIsystemwouldrequirethedevelopmentofanadditionalsecondlegoftheAzerbaijanGeorgiasectionofthe
transportationroute.Currently,theAGRIsystemwilltransportAzerbaijanigasviapipelinetoGeorgiasBlackSeacoastwherethegaswillbeliquefied.TurkmenLNGarrivingto
theBakuareawouldneedtobetransportedbyLNGtanktruckorpotentiallybyrail,usingasystemsimilartothosedevelopedinNorthEastAsiannationsforthetransportofLNG
totheirdomesticmarkets.

CONCLUSIONS:WhilethefeasibilityofTurkmenLNGenteringEuropeanmarketsviatheAGRIsystemwilldependontheextenttowhichtechnicaladvancementsinoverland
LNGtransportplacetheoptionwithintherealmofcommercialaffordability,itwillalsobeatestoftheamountofpoliticalwillthatexistsinBrusselsaswellasinEuropeanand
CaspianBasincapitalstoensurethatTurkmenistanbecomesintegratedintotheEUenergyarchitecture.SuchadevelopmentwouldbeinBrusselsandBakuslongterm
strategicinterestsasAzerbaijansexistinggasreserveswillbedepletedin40yearsifexploitationcontinuesatthecurrentrate.Nevertheless,thefurtheranceoftheAGRIproject
andtherecentprogressinTANAPsconstructioncreatetheprospectthatAzerbaijanwillnowhavetwodifferentdeliveryroutestoEurope.Asaresult,Azerbaijansstrategyto
developWesternstakeholdersinitspoliticalsovereigntythroughtheconstructionofenergyinfrastructureappearstobeonmoresoliddiplomaticfooting.

AUTHORSBIO:MichaelTanchumisaSeniorFellowwiththeEurasianEnergyFuturesInitiativeattheAtlanticCouncil.

ImageAttribution:WikimediaCommons&BorisAjeganov