Another stream to muddy the waters

JULIAN LEE | FEBRUARY 2008 | SOURCE: FSU - Pipeline Advisory

Another proposed gas pipeline from the former Soviet Union to Europe has recently hit the headlines after Ukraine’s prime minister urged the EU to back the route that would run from the Caspian Sea to Europe via Ukraine. The backers of the project, dubbed ‘White Stream’, insist that it complements, rather than competes with, other existing and proposed pipelines in the region.

This, at best, seems like wishful thinking. This project, like the Nabucco pipeline, with which it most directly competes, has one major drawback – a lack of obvious gas reserves to fill it beyond its initial-phase capacity.

Another stream to muddy the waters

It is proposed that the line would branch off the South Caucasus Pipeline (SCP), which runs from Baku in Azerbaijan to Erzurum in Turkey via Georgia, to the west of Borjomi. From there it would run 115 km to Georgia’s Black Sea coast near Supsa and then take one of two routes beneath the Black Sea.

One variant would see the line running 630 km beneath the sea to a landfall near Feodosiya in Ukraine’s Crimea region and from there to Europe either by utilising spare capacity in the Ukrainian gas pipeline system (as originally envisaged), or via another 395-km subsea pipeline from Crimea to Romania.

The second, more recent, variant envisages a pipeline running 1,120 km beneath the Black Sea linking Georgia and Romania directly. Both routes will require the pipeline to traverse depths in excess of 2,000 metres and both will require it to cross the Blue Stream pipeline that runs from Russia to Turkey, which is to be achieved by building a bridge for the White Stream to pass over the Blue.

It is envisaged that the White Stream pipeline will be built in three phases. The first phase will have a design capacity of 8 bcm/yr and is intended to be completed by 2015, to coincide with initial production from the second phase of development at Azerbaijan’s Shah Deniz field.

A second phase would double the route’s capacity to 16 bcm/yr, requiring additional compression on the SCP and a second parallel subsea pipeline. A third phase would double capacity again to 32 bcm/yr, requiring more compressors on the Azerbaijan-Georgia pipeline and an additional two subsea pipeline sections.

It is planned that the onshore pipelines would be 42 inches in diameter, with the offshore sections using 24-inch pipes. It was estimated in late-2007 that the first phase of the White Stream project would cost between $2.5 bn and $3.5 bn to build, depending on the route chosen.

The project was proposed by an independent consortium, set up in March 2006 and including London-based Pipeline Systems Engineering, economic and financial advisors ECA and the Radon & Ishizumi international legal, strategy and negotiation advisors of New York and Spectrum Consulting. The consortium’s Chairman and Technical Director, Roberto Pirani, was involved in the construction of the Baku-Supsa, BTC and South Caucasus pipelines. Others on the consortium’s technical management team were involved in trans-Mediterranean pipelines and the construction of the Blue Stream pipeline.

The consortium’s Director of Corporate Strategy is Georgi Vashakmadze, who, from January 1996 to August 2005 held various key positions in the Georgian International Oil Corporation (GIOC), including those of Head of Strategic Planning and New Business Development, Deputy Director General and CEO. He was also a member of the Georgian State Energy Commission.

Although the project boasts an impressive list of experienced personnel, it seems to miss one vital ingredient – gas to transport. Presentations by the members of the consortium identify gas from Azerbaijan as the supply source for the 8 bcm/yr required for the first phase of the project.

Gas for the project’s second 8-bcm/yr phase is identified as coming from either Azerbaijan, or if additional gas is not available from Azerbaijan, from Kazakhstan through a trans-Caspian pipeline, also to be built by the consortium. The final phase is seen as transporting gas from Turkmenistan, delivered to Sangachal in Azerbaijan through a trans-Caspian pipeline that is envisaged as already being in operation, but requiring additional compression to carry the extra volumes.

The recent discovery of additional reserves at the Shah Deniz field will support a second phase of production that will at least double the field’s first-phase capacity of 8.6 bcm/yr. However, assertions by the White Stream consortium and the EU that the pipeline does not compete with other planned routes such as the Turkey-Greece-Italy interconnector and Nabucco seem rather disingenuous.

After meeting Azerbaijan’s own domestic requirements and supply commitments to Turkey and Georgia, the Shah Deniz field could not support more than the first phases of the Nabucco and White Stream pipelines, both of which have courted state-owned Socar. White Stream and Nabucco will certainly both be competing for the same gas resources to transport to Europe.

White Stream’s Roberto Pirani was recently quoted in MEES as saying,

"It [White Stream] is complementary [to other pipelines in the region] because in all of these big projects there is a risk in delays. …Producers need to invest large sums of money in exploration and production, so they would like to see more than one outlet for their gas before they commit huge amounts of money".

This appears to suggest that the developers of White Stream are prepared to see their pipeline as providing ‘spare capacity’ and operating below capacity, which seems unlikely.

Not surprisingly, the White Steam pipeline has found enthusiastic support in Ukraine, where the government sees it as a way of breaking the country’s dependence on Russia, both as a supplier and a transit country for Central Asian gas.

The project has also found favour with the European Commission, as has every gas pipeline from the Caspian Sea region to Europe that bypasses Russia, and the European Parliament is expected to approve funding for a feasibility study into the line. The EU will also help with ‘volume building’ by negotiating with gas producers for product to fill the line, although this might create a conflict of interest, as it seems to be performing a similar role on behalf of the Nabucco pipeline.

The EU’s interest may stem from a cooling of relations with Turkey over gas transit issues, after it demanded that companies transporting gas across its territory sell up to one sixth of the gas to Turkey at the price they paid for it at the Turkish border. One senior EU source was reported by Platts as saying that ‘if Turkey is not prepared to play a constructive role, we will switch to competing routes.

White Stream is exactly the right size for the amount of gas available’, a view that seems incompatible with the assertion that White Stream does not compete with Nabucco, or other pipelines across Turkey.

Reliance on gas from Turkmenistan for later stages of White Stream appears somewhat premature. Indeed, the government of Turkmenistan was distinctly unimpressed with suggestions that its gas would be delivered through White Stream, or any other pipeline involving trans-Caspian delivery, dismissing as ‘unintelligible’ suggestions to that effect made by Ukraine's prime minister Yuliya Timoshenko in Brussels.

White Stream, like the other big gas pipelinesplanned to diversify Europe’s gas imports, appears to be relying on gas for Azerbaijan to fill its first phase and gas from Central Asia for its later stages.

As yet, however, there is no sign of the trans-Caspian gas pipelines that will be needed to move the gas out of Central Asia and, unless President Putin is prepared to back down on his demand that any such pipeline is unanimously approved by all five Caspian littoral states, or Central Asian countries are prepared to ignore him, both of which seem unlikely, no sign that such pipelines will be built any time in the foreseeable future.

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