Gas pipeline plan faces difficulties

Supply shortfalls, regulatory gaps and growing competition all pose serious risks to a high-profile plan to pipe natural gas from Central Asia to Southern Europe, despite near-completion of part of the project, energy experts said last week. Spiros Paleoyannis, vice chairman of the Athens-based Institute of Energy for Southeast Europe, said the South European Gas Ring project – which aims to pipe some 11.5 billion cubic meters of gas from Turkey to Italy via Greece via a 800-kilometer pipeline network – faces an uncertain future despite a special EU derogation that sweetens the deal. «A lot of regulatory gaps and uncertainties still exist, which could delay its completion and cut into profits once operative,» Paleoyannis said. The route runs through an environmentally sensitive, earthquake-prone region and needs more study, while investors are holding back over doubts there will be enough gas to fill it. He was speaking at a conference on energy and development in the Greek capital. The interconnector also faces «fierce competition» from alternative sources, including Russia, Norway and North Africa, and from producers of liquid natural gas, for which production costs have fallen sharply. Greece’s government announced last week that Prime Minister Costas Karamanlis will travel to Turkey next month for the opening of the Turkish-Greek leg. The gas project features heavily in Greece’s efforts to promote itself as an emerging energy hub, and is backed by the three governments, who signed a trilateral agreement for it in July. The Italian-Greek segment – which includes a 212-kilometer link below the Adriatic Sea – benefits from an EU decision to grant almost exclusive control over the pipeline to Italian power company Edison SpA and Greek supplier DEPA in order to promote competition within Italy, where gas company ENI controls most of the market. However, it could be threatened by a fast-moving competitor, the Trans-Adriatic Pipeline (TAP) being developed by Swiss energy group EGL, which aims to pipe gas from Alexandroupolis in Greece to Brindisi in Italy via Albania along a shorter, 570-kilometer route. A recent IESE report says that TAP, unlike the interconnector, has secured both customers and suppliers in northern Italy and Switzerland. In March EGL announced it had completed preparatory work and would start construction next year, aiming to finish by 2010 – a year earlier than the interconnector. Azerbaijan will likely be a key supplier, given US pressure to block Iranian gas from Western markets and a general will to develop non-Russian energy sources. However, the institute questions whether Azerbaijan, a still-developing source of gas, could supply enough gas to make both lines viable. Relying on the landlocked Caspian region for energy «is not only an economic issue but a geopolitical one,» said Christos Dimas, general manager of the Thrace/HELPE Consortium building an oil pipeline between Bulgaria and Greece. Paleoyannis said Europe is caught in a geopolitical «energy war» between the US and Russia that fuels fears over security of supply – even though Russia, Europe’s main source, has been a generally reliable supplier. The share of gas in Europe’s primary energy consumption is about 25 percent, double the level 15 years ago. However, prices have risen steeply, causing several producers to cancel plans to build new gas-fired power plants – despite its «green» credentials compared with oil and coal.