May 6, 2007
Today, Europe is a net importer of gas. Natural gas accounts for 25% of the European Union’s total energy consumption. The Union currently imports more then 40% of its natural gas needs, with the major suppliers being Russia, Norway and Algeria. It is expected by the European Commission that the EU’s dependency will rapidly increase in the coming decades. This import dependency will rise from 40% to 55% in 2010, to 67% in 2020, and to 81% in 2030, according to the Europe Energy Outlook 2020.i
The European Union is currently in need of diversifying its import dependency. Russia has the biggest stake in the imported natural gas consumption of Europe. Currently, however, Russia is not a reliable source for import as it has difficulties of various sorts with several former Soviet countries, as well as a rapidly growing domestic need for natural gas. Nevertheless, Russia will remain the prime supplier of the European Union as it has already existing deals and pipeline connections with the EUii, even though it faces difficulties in export due to the constraints in the region.
Norway is the second major supplier for the European Union. It produces natural gas from indigenous North Sea resources, but the gradual exhaustion of these resources means that Europe is increasingly looking for alternative ways to import natural gas.
Algeria is the third major supplier of natural gas to the European Union. Natural gas which is imported from Algeria is in LNG format. The North African country is one of the major supplies for the Mediterranean and Atlantic coast of Europe. The LNG format of natural gas from Algeria is currently lacking markets in Central and Eastern Europe, however. It is also expensive to export LNG format due to the transportation costs for vessels, and its transformation process. It has relatively high costs when compared with piped gas.
The most popular perspective in the modern energy sector considers diversification of the sources and the security of supply. According to the new policies that the European Union is implementing, this perspective would be the benchmark for the future natural gas balance of Europe.
The construction of new pipelines utilizing the same sources has nothing to do with the perspective of diversification of sources. For example, currently a Russia-Germany natural gas pipeline is under construction (via Ukraine and Poland). The pipeline will run from Babayevo to the Russian coast at Vyborg, before going under the Baltic Sea to the town of Greifswald in north-eastern Germany. It is basically the construction of a pipeline from a usual source, Russia. It does not particularly help the European Union’s policy of diversification of resources, however, even though Alexey Miller, the chairman of Russian giant GazProm stated that “we have launched a great European project… This is a new export route that will increase Europe’s energy security”iii.
Currently, the problem in the EU is the lack of common energy policies. When it comes to energy, member countries cannot implement the same policies, as they tend to regard energy narrowly as a problem of national interest first and foremost. Therefore, new pipelines and routes from different sources should be taken into account in order to capture the real spirit of Europe-wide security of supply and diversification of sources.
One of the major alternatives for the European Union is to import gas from the Central Asian and Caspian Sea Region countries. The vast energy potential of these regions has refocused the EU’s attention. The demise of the Soviet Union has also increased the number of countries through which pipeline must transit.
In order to import natural gas from these regions, The EU has two choices. The first one is to increase the import dependency on Russia, by importing the regions’ natural gas via the Russian pipeline system. The second and more effective choice would be through the new route from the Caucasus and Turkey. With this second option, the EU could have the possibility of importing natural gas from Turkey via Greece.
A new South Caucasus gas pipeline, Baku-Tbilisi-Erzurum, will be operational soon in order to connect the vast natural gas resources of the regions to the Turkish natural gas pipeline network.
The EU is currently taking a number of efforts to strengthen its diversification of natural gas need. Creating trans-European energy networks is the major policy for the EU. It is focusing on regional formations, such as the South European Gas Ring involving Turkey and Greece- thus bringing Caspian and Central Asian natural gas West via an alternate route.
Turkey’s Role as a Supplier
Turkey is currently transforming itself from a transit country to a major energy supplier and an energy hub. It has a major role in the East-West energy corridor, according to current trends in world energy consumption and production. Turkey is the major conduit for primary markets like the EU from production regions such as Central Asia and the Caspian. Currently, there are no physical natural gas pipeline connections between Europe and Turkey. It thus becomes important to connect the European continent to Turkey in order for the former to import natural gas from Caspian and Central Asian Region via an alternative and reliable route.
The first step for the European Union to benefit from existing Turkish pipeline networks is the Turkey-Greece interconnector. The regional framework for this connection is the South European Gas Ring. Turkish-Greek collaboration is strongly supported by the EU in order to realize this project. The feasibility of the project is supported by funds from the Trans-European Networksiv. With the financial support of the EU, the construction of a Turkey-Greece interconnector started in July 2005 and is expected to finish in the first half of 2007. This is only the first part of the project, however. The second part will be to connect Greece to Italy via an undersea pipeline between northwestern Greece and Otranto, Italy.
The first part of the project comprises the construction of a 286 km pipeline between Karacabey, Turkey and Komotini, Greece. It will begin by carrying 0.75 bcm/y and will reach its potential to 11 bcm/y in 2011v. It will carry the natural gas of Azerbaijan to Europe, via the Baku-Tbilisi-Erzurum pipeline. Turkey and Azerbaijan have already signed an agreement on the sale of gas to Turkey with a clause on re-sale option. Kazakhstan is currently trying to break the Russian dominance on its natural gas export, and in the future it can export its natural gas via the BTE natural gas pipeline through Turkey, and thereafter the European Union.
Also, with the possible Trans-Caspian pipeline, Turkmenistan would be in a position to export its vast natural gas resources to Europe via Turkey. This is one of the first steps for Turkey to become a major supplier for Europe’s natural gas needs, besides the projected Nabucco Pipeline and the existing Turkey-Tabriz Pipeline. Turkey is more likely to become a “fourth artery” of European natural gas imports with the pipelines which have been constructed, those which are under construction or are projected for the future.
Greece’s Role as a Transit Route
The major project which will connect the Caspian/Central Asian regions to the EU is starting with the South-European Gas project. Greece has a major role here, as this project is turning Greece into one of the major transit country for Caspian and Central Asian gas exported via Turkey.
Greece is in the process of transformation in the field of energy, just as Turkey is. With the developments of new pipeline networks, Greece will shift from energy consumer market to energy transport hub and an energy producer, with possible side deals for a re-sale option. Greece has already finished most of its interconnections of natural gas framework.
The South-European Gas Ring project is one of the major alternative for the EU for becoming less dependent on Russian gas. This process is starting with a pipeline which will connect Turkey’s domestic natural gas infrastructure with Greece. Turkey and Greece have already made agreements with Azerbaijan and Iran for the future sale to the EU. This is the first step in creating a southern gas route to the EU from the Caspian.
This connector has further significance for Turkey and Greece. This could be an important symbol for Turkish and Greek collaboration for the future. As Greek Premier Costas Karamanlis put it, “this pipeline is connecting two countries and two peoples.vi” Thw project is also strongly supported by the US and the EU for the future of the eliminating the perennial Aegean rivalry between the two old adversaries.
The second step of this project is to connect Greece with Italy by a pipeline from northwestern Greece to Ontranto. It will comprise a 212km undersea stretch and its connection to the Turkey-Greece pipeline which will complete sometime in 2007. The Italy-Greece project can also be seen as a demonstration of the European Union’s will to reduce its Russian dependency.
Greece will import up to 11 bcm of natural gas via the new pipeline, of which it will export more then 8 bcm to Italy. The remainder will be for regional and domestic use. Greece has one advantage in this case. Natural gas accounts for only 10% of Greece’s energy consumptionvii. This means that Greece will be able to export a significant amount of natural gas to Western Europe.
Greece also has strong aspirations in the Balkans in the field of energy. It currently envisions exports to Albania, Macedonia and Bulgaria, including all the signatories of the 2005 Energy Community treaty for Southeastern Europe, and all Russian clients.
In conclusions, the South European Gas Ring project is a real alternative for the European Union to diversify its natural gas supply. It is a positive project for the EU to assure its energy security in this way. In this sense, Turkey and Greece hold the main role in this project. The significance of Turkey as an alternative natural gas supplier to the European Union, and Greece as a transit point as an EU member, mean that this project will further help the collaboration between Turkey and Greece, despite the chronic disputes in the Aegean and over the island of Cyprus.
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