It is being touted as a project that could beat the long-delayed Nabucco pipeline to the finish line. Even so, the recently unveiled Azerbaijan-Georgia-Romania Black Sea liquefied natural gas export route appears to be long on promises and short on financing.
Known as the Azerbaijan-Georgia-Romania Interconnection Project (AGRI), the project plans to supply roughly 6- to 8-billion cubic meters of liquefied Azerbaijani natural gas per year to Europe via Black Sea tankers. The project would circumvent both Russia and Turkey, two of the South Caucasus’ main energy transit corridors. [For background see EurasiaNet’s archive].
The gas would run via pipelines from Baku to the Georgian Black Sea port of Poti, where it would be liquefied. Tankers would then transport the gas to the Romanian Black Sea port of Constanta, where the LNG would be converted back into gas and shipped onward to Western Europe. Romania contains underground gas storage facilities and a network of pipelines to Bulgaria and Hungary.
A joint Georgian-Azerbaijani-Romanian company headquartered in Bucharest is expected to be set up within the next few months to complete a feasibility study for the project, Georgian Minister of Energy Aleksandr Khetaguri told EurasiaNet.org. If financing comes through, the project is scheduled to be gas-ready by 2013 or 2014, he said. An agreement on the project was inked by the three partners in Bucharest on April 13.
“AGRI may come true sooner than Nabucco if everything goes smoothly,” Khetaguri forecast optimistically. “It is a supplementary project to Nabucco to insure a diversified gas supply to the EU [European Union].” [For background see EurasiaNet’s archive].
Nabucco, which has an official launch date of 2014, has been plagued by a variety of unanswered questions, including an ongoing dispute between Azerbaijan and Turkey over transit fees for Azerbaijani gas. On April 27, Turkish Energy Minister Taner Yildiz was quoted as saying that the two sides had reached a tentative agreement about a transit fee. No details have been made public yet.
Other Nabucco partners, however, have expressed reservations. In a recent interview with the German newspaper Sueddeutsche Zeitung, European Energy Commissioner Guenther Oettinger projected that Nabucco may not come online until 2018 at the earliest. Oettinger later issued a statement expressing confidence that Nabucco will start work in 2014, and be at “full capacity” by 2018, various media outlets reported.
Nabucco is projected to carry about 30 billion cubic meters (bcm) of gas per year to Europe. But Khetaguri argues that more will be needed to meet European demand. “Any volume of gas that can be provided to Europe via alternative routes bypassing Russia is attractive to Europe,” Khetaguri said.
Plans for financing the project, and what amount of gas Georgia would take as a transit fee, remain unknown. Khetaguri estimated the project’s total cost at 4 billion - 6 billion euros, or about $5.3 billion - $8 billion.
“Nobody can say today who will be financing and constructing the terminals,” Khetaguri said. “This feasibility study will make clear how profitable the AGRI project is for investments and only then will the financing issue be settled. … It’s too early to talk of this today.”
Tbilisi-based independent energy analyst Liana Jervalidze characterized AGRI as a “win-win” proposition. It includes gas producer Azerbaijan, a country vitally interested in the EU market; the gas consumer itself, the EU, interested in diversifying its gas supplies; and a small transit country Georgia, that has no incentive to cause difficulties.
“Azerbaijan does not have a more stable partner than Georgia at the moment. It is too little, gas-deficient, depends on Azerbaijan and is interested in transiting as much gas as possible to enjoy additional volumes of gas as a transit fee,” said Jervalidze. That situation is the opposite for “Turkey, which ranks among the G-20, is a very powerful player with influence over Middle Eastern countries, and can dictate its rules of the game in transit policy.”
Khetaguri asserted that Romania would be a “guaranteed purchaser” for 8 bcm of AGRI gas. Romania’s energy-sector National Regulatory Authority reported natural gas consumption for 2009 stood at 13.2 bcm. Other Central European countries – Serbia, Greece, Bulgaria and Hungary – are expected to tap into the project, too, he said.
Poland and Croatia both have LNG terminal projects underway that Jervalidze predicted could spark additional interest in AGRI gas supplies.
While enthusiasm for AGRI is high in Georgia, some experts in Azerbaijan are more restrained in their analysis. Those outside of Georgia see geopolitics as a potential obstacle. “Nobody forgot the consequences of the Russian aggression in Georgia when the export of Azerbaijani oil and oil products across Georgia was paralyzed for approximately a month,” commented Ilham Shaban, head of the Center for Oil Research in Baku. “Therefore, top Azerbaijani officials are making very cautious statements about this project at the moment.”
The costs involved pose another potential problem, he said. Construction of the Poti terminal for liquefying Azerbaijani gas could cost at least 5 billion euros, or about $6.7 billion, Shaban estimated. Georgian Energy Minister Khetaguri did not dispute that estimate, but noted that construction of the Constanta terminal, which would convert the fluid back into gas, is expected to be much cheaper – roughly 1 billion euros (about $1.3 billion).
If the feasibility study shows that the project would “be commercially reasonable only if its productive capacity is based on at least 5 billion cubic meters [per year],” then questions will arise about finding sufficient consumers for the LNG and how much gas they would want to receive for covering any part of the Romanian terminal’s construction expenses, Shaban predicted.
“The Azerbaijani government is not going to subsidize this project. Commercial expenses must be met by companies,” Shaban said.
Nino Patsuria is a freelance reporter based in Tbilisi.