Southern Gas Corridor’s dubious contribution to energy security

Advertised by the EU as the silver bullet that will free Europe from its dependency on Russian gas, the Southern Gas Corridor (SGC) is highly unlikely to ensure energy security and might in fact end up channelling Russian gas, warns Xavier Sol.

While proudly presenting the “Second report on the State of the Energy Union” earlier this month, European Commission Vice-President Maros Šefčovič did not forget to mention the so-called strategic importance of the Southern Gas Corridor. The 3,500 km long chain of pipelines that would stretch from Azerbaijan to Italy is the EU’s largest energy infrastructure project.

But in light of recent developments, the rhetoric around this $45 billion project increasingly looks like a heap of blatant contradictions.

In the latest example of the Commission’s relentless commitment to this controversial project, yesterday (23 February) Šefčovič attended in Baku the third meeting of the SGC Advisory Council alongside the Azeri president, a group of EU ministers and executives, US officials, and representatives from the public banks involved.

Yet, the Commission’s narrative lies on very unstable ground.

A first red flag arrived when in October 2016 Russia and Turkey signed an agreement on the so called “Turkish Stream” and many foresaw Gazprom’s intention to connect this new pipeline to the SGC.

Indeed, while expected to bring more Russian gas to Turkey through the Black Sea, the Turkish Stream‘s placement appears quite strategic: the last section of the pipeline would run up to Ipsala, just opposite the town of Kipoi, across the Greek border, where the Trans Anatolian Pipeline (TANAP) and Trans Adriatic Pipeline (TAP) – the two main sections of the SGC – are planned to connect.

Gazprom itself confirmed the experts‘ guess, when its deputy chairman Alexander Medvedev officially announced the possibility to channel their gas through TAP on the occasion of a conference in Vienna in January 2017.

Thus TAP combined with the Turkish Stream could be just the piece of infrastructure that was missing in order to secure an extra delivery of Russian gas to south-east Europe, as further validated by the words of Michele Mario Elia, TAP‘s country manager for Italy, in an interview for RAI3’s Report on Italian TV.

Ironically, the SGC has been primarily promoted as a strategy to emancipate the EU‘s gas supply from Russia and improve “energy security”.

A Bankwatch report from as early as January 2015 already warned that the SGC simply cannot be the solution to Europe‘s dependence on Russian gas. When presented with such incoherence during a press briefing related to the second State of the Energy Union, Šefčovič chose to switch to a brand new narrative, according to which the EU “should be less worried [about Gazprom] than in the past”.

But the energy security angle is not the only one where the European Commission’s justification for the SGC is at odds with EU policy priorities. In front of the European Parliament, the Commission’s vice-president also insisted on his determination to foster “the transition to a more modern, low carbon economy” with the “ambition to move away from an economy dependent on fossil fuels”.

This should be materialised, he argued, through the development of essential infrastructure which would be supported “only if in line with the long-term energy policy of the European Union, avoiding stranded assets and carbon lock-in”.

It is really hard to imagine how the Southern Gas Corridor can ever fit into this picture. How can building such a gigantic gas pipeline not contribute to a fossil fuel lock-in?

In fact, the Commission, which often prides itself for leading the global effort to tackle the climate crisis, has recently admitted that no assessment has been done for the climate impact of the project.

In addition, a recent study of the Oxford Institute for Energy Studies showed that the future of the pipeline does not look too bright. Specifically, the gas supply available at the Azeri field for the SGC until 2030 is considerably smaller compared to previous forecasts.

This would mean that Azerbaijan would not be able to deliver the expected quantity of gas to the pipeline. Hence, even in economic terms, the feasibility of the project looks shakier than ever and the SGC is likely to become a stranded asset.

But perhaps this is also why at least two shareholders of the Trans Adriatic Pipeline – the SGC‘s western leg – “would welcome“ Gazprom also using the pipeline to ship gas to Europe.

At the backdrop is the decrease of European gas demand – even according to the Commission’s own figures – which questions the need for building additional gas infrastructure, a finding that has been underlined in the study “Energy Union Choices” published in February 2016.

To conclude, the Commission should reconsider its support to the Southern Gas Corridor. Europe cannot build a pipeline meant to diversify gas supply away from Russian gas, only to allow Russian gas through it.

Putting billions of euros via the European Investment Bank into a project which both contradicts the Paris Agreement and risks becoming a stranded asset is neither the best use of EU taxpayers money nor the kind of investment that will drive Europe towards a just energy transition.