Europe faces the prospect of a extreme fuel scarcity because of the Russian invasion of Ukraine, which threatens the long run supply of round 140 billion cubic meters of fuel per yr (bcma) of Russian fuel to EU prospects. Even earlier than the invasion, the tightening European fuel steadiness had raised costs to excessive ranges, bringing fuel (and electrical energy) firmly to the forefront of nationwide and EU coverage considerations round power affordability.
Now, simply two weeks after the invasion, the EU Fee has issued a name to part out Russian fossil gasoline imports properly earlier than 2030. If not correctly managed, this might make the Russian steadiness a lot worse.
Russia provides 40 % of the EU’s fuel, and changing this type of quantity with a combination of other fuel provide sources, wider deployment of renewables, and demand-side interventions and enhancements inside simply eight years is a gigantic ask. Finishing up this phase-out plan would require unheard-of ranges of financing, unprecedented political cooperation with non-EU suppliers, and unwavering client help.
Different fuel provide, particularly, could pose a problem. There may be hardly any extra fuel to return from both North Africa (primarily Algeria) or Norway within the short-term. The start of Black Sea manufacturing from Turkey’s Sakarya discipline and Romania’s Neptun discipline (whether it is given the go-ahead very quickly) might assist, however not till 2024 and 2025, respectively. Expansions from current suppliers might take 5 years or extra. East Med seems to be prefer it may come to the battle too late, whereas a rise in manufacturing from the Groningen fuel discipline could be potential however politically troublesome. The LNG spot market is an possibility, however meaning competitors from Asia for the now very fungible, crude oil-like commodity.
That leaves the Caspian Sea. Caspian producers are able to provide as a lot as 10 further bcma inside a matter of months, a quantity which no different sources of pipeline fuel can match.
There are 3 ways during which fuel from at the moment working fields within the Caspian can contribute to Europe’s fuel steadiness within the brief time period. All are predicated on the idea that if the fuel can attain Turkey, then LNG going into Turkey will be freed up for aggressive sale to the remainder of Europe, the place there’s a snug surplus of LNG regasification capability. In 2020, Turkey imported 15 billion cubic meters (bcm) of LNG, adopted by 14 bcm in 2021; the latter represented 24 % of its fuel demand on the yr. Changing a few of that with pipeline fuel from the Caspian and releasing up the displaced LNG for EU markets to bid on would supply speedy provide.
The three choices are:
- Seize of 5 bcm of fuel produced by Petronas in Turkmenistan’s sector of the Caspian, most of which is being flared, and transporting it to Azerbaijan.
- Elevated volumes by way of the Turkmenistan-Iran-Azerbaijan 2 bcma swap association, energetic since January 2022. This might increase deliveries to Azerbaijan by one other 2-3 bcm, releasing up a comparable quantity of Azerbaijani fuel for supply to Turkey.
- Group of a brand new Turkmenistan-Iran-Turkey swap association to utilize spare capability within the current 48” Iran-Turkey pipeline.
All three are potential as a result of Turkmenistan has spare manufacturing capability, is flaring, and might feed manufacturing into current pipelines or, as within the case of Petronas, into a brand new brief 78-km, 10 bcma line to hook up with current fuel gathering services in Azerbaijani waters. Azerbaijani sources point out that such a line might be operational inside 4-6 months of it being permitted, and that the associated fee could be probably be within the $300-$500 million vary.
The present Iran-Turkey line ought to be capable of transport extra: in 2021, Iran exported 9.4 bcm to Turkey—near the contractual 9.6 bcm—however it’s a 48” line and thus ought to be capable of deal with extra. Deliveries to date in 2022 have been considerably decrease, opening up much more capability. Reinvigorating Turkmenistan’s exports to Northeast Iran would offer the mandatory provide.
In the meantime, the Turkmenistan-Iran-Azerbaijan swap has been working for the reason that starting of 2022. It’s reportedly working properly, and enlargement has been mooted. For the Iran-Azerbaijan section, simply how a lot fuel may be capable of attain Azerbaijan is tough to evaluate. The pipeline was initially constructed some fifty years in the past because the IGAT-1 line to export fuel to the USSR and has been repurposed to hold 2 bcma as half of the present swap association. Likely its capability have to be properly beneath the unique 10 bcma, however latest discussions between the Azerbaijanis and Iranians counsel it would be capable of perform a little greater than at current.
Inside a yr, Turkmenistan might be able to delivering as a lot as 10 bcma to Azerbaijan, each by a easy connector line throughout the Caspian and by way of Iran. The query then strikes on to transportation westwards to Turkey. Whether or not the prevailing South Caucasus Pipeline (SCP) might carry such an extra quantity stays unclear, however there are some encouraging indicators (it carried a complete of 17.7 bcm in 2021 to Azerbaijan, Georgia and Turkey, however was designed to be expandable to over 30 bcma from further compression). Notice additionally that in any Turkmenistan-to-Azerbaijan state of affairs, some fuel will probably be taken by Azerbaijan itself due to its now long-running home fuel brief; nevertheless, this extra provide will merely make it extra snug growing its onward deliveries to Turkey.
As for the ultimate a part of the association, the Southern Fuel Hall is the system that carries Azerbaijani fuel throughout Turkey to Italy, with the Trans-Adriatic Pipeline—the ultimate part from Turkey to Italy—already working close to its present 10 bcma capability. Further piped fuel by Turkey to Europe might be exceedingly onerous to return by.
That is why Turkey’s political cooperation is a vital element in importing Caspian fuel into Turkish markets and making would-be Turkish LNG accessible for the EU within the brief time period. There must be no industrial or contractual impediments to doing this, as all its LNG aside from the Algeria contracted quantity is spot. (After all, this might not occur mechanically; EU patrons would wish to supply aggressive costs.)
Turkmenistan does have the potential to provide considerably larger portions of fuel, however within the brief and medium time period, something greater than 5-10 further bcma would require important funding in increasing related pipeline infrastructure. Making the Turkmenistan-linked choices potential begins by recognizing that technical and industrial points will want clarification. Nevertheless, compared with the paucity of different short-term pipeline choices, it seems to be very engaging.
Furthermore, the geopolitical planets might be aligning. As of March 12th, Turkmenistan has a brand new president. Serdar Berdimuhamedov, the forty-year-old son of the earlier president, will need to make his financial mark instantly. Secondly, on March 16th, Iran launched Nazanin Zaghari-Ratcliffe again to the UK, in response to the cost of a £400 million debt for cancelled tanks relationship again to the Nineteen Seventies. In a world seeking to substitute Russian fossil fuels, Iran might quick be constructing worldwide confidence.
Lastly, regardless of rising worldwide costs, Turkey’s fuel demand was abnormally excessive in 2021, rising 20 % from 2020 ranges to 58 bcm. Low rainfall had decreased hydro output considerably, and a few 4-5 bcm of the demand improve in 2021 was gas-fired era making up for the hydro shortfall. With higher rainfall and snow already in 2022, fuel demand seems to be set to fall again this yr, releasing up some fuel for potential export.
Total, politics, ready-to-go fuel provide, and a scarcity of different possible alternatives make the Caspian fuel possibility each engaging and viable. It is going to require the EU to construct a stronger power relationship with Turkey. However with Russian fossil gasoline exports changing into toxic, constructing that relationship seems to be each doable and important.
Julian Bowden is a former economist with BP specializing in fuel markets in SE Europe and the Caspian, and is a Senior Visiting Analysis Fellow with the Oxford Institute for Power Research OIES.
John Roberts is a nonresident senior fellow on the Atlantic Council International Power Middle and a member of the UN Financial Fee for Europe’s Group of Consultants on Fuel.
The authors acknowledge that they’re on the advisory board of a mission to put a 78-kilometer connector pipeline between the Petronas-operated Magtumguly discipline in Turkmenistan and gas-gathering services operated by BP within the Azerbaijan’s Azeri-Chirag-Gunashli oilfield. They belief that readers will acknowledge that that is simply one of many three choices offered above, and that each one must be thought-about significantly as a part of European efforts to safe options to fuel from Russia.
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Picture: A tanker within the Bosphorus Strait, in Istanbul. (Filipp Romanovski, Unsplash, Unsplash License) https://unsplash.com/license