With energy security once again a paramount geopolitical concern, the rich energy resources of the Caspian are coming into focus.
In its newly published Energy Union Package, outlining the industry’s biggest shake-up in half a century, the European Union is looking hard at the Caspian region as a diversified source to meet the bloc’s energy requirements.
Efforts are being stepped up to develop a Southern Gas Corridor to pump gas from the Caspian basin to Europe through Georgia and Turkey, a project identified by the the European Commission as a Project of Common Interest.
Any EBRD involvement in an energy infrastructure project of this magnitude would be just one element of the Bank’s broad energy strategy, which also places a strong emphasis on promoting energy efficiency and the development of renewable energy. Since the launch in 2006 of its Sustainable Energy Initiative, the EBRD has invested more than $20bn in energy efficiency and renewable projects that both support economic development and combat climate change.
The Bank has extensive experience in complex pipeline projects that have complemented our work in energy efficiency. Our participation has often helped ensure the highest possible environmental and social standards in typically demanding conditions. The EBRD was a leading party in the development of the Baku-Tblisis-Ceyhan oil pipeline (BTC) and also the South Caucasus Pipeline for natural gas (SCP). The Bank has also provided financing towards the Shah Deniz off-shore facility in the Caspian.
The challenges of an undertaking like the envisaged Southern Gas Corridor are not to be underestimated and will be debated in detail at a seminar in London this month, the Caspian Corridor Conference 2015, which will be attended by high-ranking officials from and experts on the region.
Participants from the region and the UK will look at how to overcome the very large potential risks linked to the project. Mitigating these risks will be key to the Corridor’s commercial viability and the project’s ability to attract the significant amounts of finance that will be required.
One such risk is resource and demand availability and the ability to demonstrate a steady, balanced, long-term flow of revenues.
In the case of the gas supply for the Corridor, this is initially expected to flow from production at Shah Deniz, one of the world’s largest gas fields.
But several new recent discoveries in the Caspian and the Mediterranean mean the Corridor’s potential is much larger than Shah Deniz. The Southern Gas Corridor may in the future transport gas from other fields in Azerbaijan, and also Turkmenistan, northern Iraq and the offshore fields in the eastern Mediterranean.
European demand for gas is currently rather low. However, Europe will need more gas in the longer term, as coal – and, in some cases, nuclear power – continue to be phased out of the energy mix. Gas is ideally placed to provide reserve capacity and meet balancing needs even when renewables are more widely deployed.
Political and cross-border uncertainty is among other key risks during the development phase of a major pipeline. Consensus amongst governments can at times be difficult to reach due to differing priorities among the various countries involved.
However, this issue can be addressed through inter-governmental agreements that reflect the necessary underlying political support and host government agreements that help to smooth the way for commercial consensus.
In addition to the operational and technical risks of any major project, environmental and social risks must be considered early in the development stage of such a large-scale undertaking.
It is absolutely crucial that detailed consultations are held and that concerns, especially of local populations directly affected by the proposed infrastructure, are taken into account. Engaging pro-actively and transparently is a precondition to a successful project.
The Southern Gas Corridor will clearly have an important role to play in Europe’s energy security. All the relevant parties need to work closely together to meet the very many conditions that will help it come to fruition.- reported http://blogs.ft.com.
Riccardo Puliti is managing director for energy and natural resources at the European Bank for Reconstruction and Development (EBRD).
