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Abstract
Security and diversication of EU energy supply underlines the importance of an energy corridor bridging the natural gas reserves
of the broader Caspian Region with the EU consumption centers. This paper examines the supply potential of this corridor, the
major natural gas elds and the already existing networks. An assessment of the supply cost up to the Turkish borders is carried out,
while the case of Egypt as a future supplier is also investigated. Conclusions review the prospects for the construction of the
considered energy corridor.
r 2005 Elsevier Ltd. All rights reserved.
Keywords: Caspian region; Energy corridors; Supply potential
1. Introduction
The energy consumption of the European Union
(EU-15) countries is expected to continue increasing
until 2020 with an average growth rate of 0.7% per
annum (EC, 1999). The recent enlargement (EU-25)
does not alter signicantly the dependence on external
energy sources, which is estimated to reach 70% by 2030
(EC, 2001).
Natural gas will expand its share in the European
energy market, from 22% in 2000 to 29% in 2030
(EC, 2001). Until now the main EU suppliers for
this fuel are Russia, Algeria and Norway. Fig. 1
presents the forecasted increase in the EU natural gas
consumption and the needed additional supplies to be
dened.
Security of supply necessitates new sources and
diversication of their routes. The Caspian Region is
Corresponding author. Tel.: +30 210 727 5836;
fax: +30 210 727 5828.
E-mail addresses: epgsec@kepa.uoa.gr (D. Mavrakis), fthom@
kepa.uoa.gr (F. Thomaidis).
0301-4215/$ - see front matter r 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2004.12.015
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ADDITIONAL SUPPLIES TO BE
DEFINED
NET CONTRACTED IMPORTS
INDIGENOUS PRODUCTION
500
400
Mtoe
300
200
100
0
2002
2005
2010
2015
2020
Year
2. Supply potential
2.1. Natural gas reserves
Natural gas reserves are dened as the part of the
reserve base that could be economically extracted or
produced at the time of determination (USGS, 1996).
In this section, the natural gas reserves data were
provided from the BP Statistical Review of World
Energy 2004, ENI World Oil and Gas Review 2004
and EIA Country Analysis Briefs. The proven reserves
denitions for the three organizations coincide. They are
considered as the quantities, geological and engineering
information indicate with reasonable certainty, that can
2.1.1. Azerbaijan
Azerbaijan has 1.37 Tcm (BP, 2004a; ENI, 2004) of
proven natural gas reserves and the possible reserves are
estimated at an additional 1 Tcm (EIA, 2003). About
90% of the proven reserves are located in the Caspian
Sea. The country until recently was a natural gas net
importer with a slight decreasing production against an
increasing consumption (Fig. 4). Fig. 5 shows a high and
a low case scenario for Azerbaijans estimated natural
gas production and consumption up to 2020, based on
the study Caspian Oil and Gas by the International
Energy Agency (IEA, 1998). According to these estimations, production is expected to overlap consumption in
the following years.
The Shah Deniz associated natural gas eld, discovered in 1999, is located in the South Caspian Sea,
100 km southeast of Baku, between Mobils Oquz,
Chevrons Asheron and Exxons Nakhchivan oil elds.
The development contract of the Shah Deniz eld was
signed in 1996. The involved companies are BP (25.5%),
Statoil (25.5%), State Oil Company of the Azerbaijan
Republic (SOCAR) (10%), NICO (10%), TotalFinaElf
(10%), LUKAGIP (10%) and TPAO (9%). The
contracted area covers approximately 860 km2, with
water depths that range from 50 to 500 m, while the
main reservoir rocks are estimated at a total depth of 5
to 6.5 km (BP, 2002; Offshore Technology, 2004a). The
elds natural gas reserves are 0.42 Tcm1 (Kelly, 2003)
and the elds development lifetime will be at least 30
years.
1
Recent drillings show that the Shah Deniz gas reserves are 100 Bcm
greater than initially supposed. The total estimated reserves are
0.63 Tcm (Petroleum Economist, 2004b).
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Table 1
Supply sources of the suggested energy corridor
Country
Probable reserves
(Tcm)
Possible reserves
(Tcm)
Production in 2003
(Bcm)
Consumption in 2003
(Bcm)
Azerbaijan
Turkmenistan
Iran
Iraq
1.37
2.9
26.526.7
3.13.2
N/Aa
N/A
N/A
4.25
1
4.5
0.3b
N/A
4.8
55.1
79
2.35c
8
14.6
80.4
N/A
Azerbaijan
35
30
Bcm
25
20
15
10
5
0
Low case scenario
2010 Production
2010 Consumption
Bcm
Azerbaijan
9
8
7
6
5
4
3
2
1
0
1996
1998
2000
Year
Production
2002
2004
Consumption
2.1.2. Turkmenistan
According to British Petroleum and ENI, Turkmenistans proven natural gas reserves come up to 2.9 Tcm
(BP, 2004a; ENI, 2004). Possible reserves are 4.5 Tcm
(EIA, 2003). Natural gas production has increased in the
last years, while consumption has remained almost
constant (Fig. 6). The country is a natural gas net
exporter, producing 55.1 Bcm and consuming 14.6 Bcm
in 2003 (BP, 2004a). Gas is currently exported to Iran
and mainly through the Russian pipeline network to
Europe. Fig. 7 shows a high and a low case scenario for
Turkmenistans estimated natural gas production and
consumption up to 2020 (IEA, 1998). Both scenarios
indicate that the country will remain a net gas exporter
for the following years.
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Turkmenistan
60
Iran
100
50
80
Bcm
Bcm
40
30
20
40
10
20
0
1996
1998
2000
2002
2004
Year
Production
140
Consumption
Turkmenistan
120
100
80
60
40
20
0
Low case scenario
2010 Production
2010 Consumption
0
1996
1998
2000
2002
2004
Year
Bcm
60
Production
Consumption
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needs is the 56 ins IGAT III that transports gas from the
South Pars eld to the northwestern region of the
country. Iran aims to sell gas to Europe through Turkey.
On August, 1996 Turkey and Iran signed a 25-year
natural gas supply agreement, starting at a volume of
3 Bcm/yr to reach 10 Bcm/yr up to 2007 (NIGC, 2004).
The natural gas delivery started in December of 2001,
through the 1174 km long Eastern Anatolia Natural Gas
Transmission Line linking Dogubayazit on the TurkishIranian border with Ankara (BOTAS, 2004), but due to
oversupply of the Turkish market, the transported
volumes were signicantly decreased (6.44 Bcm has been
imported by Turkey up to August of 2004 according to
NIGC) and prices are re-negotiated. The country has
also reached an agreement with Armenia to export
36 Bcm of gas in a 20-year period, from 2007 to 2027,
through the aforementioned IranArmenia pipeline
(Petroenergy Information Network, 2004). As payment
for the gas, Armenia will export electricity to Iran.
2.2.4. Iraq
Iraq and Turkey signed a frame work agreement on
December 1996 in Ankara for the delivery of 10 Bcm/yr
of gas to Turkey. Natural gas was planned to be
transported from the countrys elds to the Turkish
market through a 1380 km pipeline (IEA, 1998). The
Iraqi gas is evaluated as more competitive, in cost terms,
compared to gas from the traditional players (Azerbaijan, Turkmenistan, Iran, and Russia) of the Caspian
Region. This plan has not been implemented, due to the
sanctions inicted at Iraq until recently. The Caspian
Regions main gas export pipelines are presented in
Table 2.
3. Supply cost
3.1. Methodology
The total supply cost of a natural gas transportation pipeline is calculated by the equation
TSC PC+TC+TF (1), where TSC denotes the total
Table 2
Caspian Region main gas export pipelines
Name/Location
Route
SCP
Azerbaijan via
Georgia to Turkey
Turkmenistan via
Azerbaijan to Turkey
TurkmenistanIran
IranTurkey
7.3
TCGP
KorpezheKurtKui
Eastern Anatolia
Natural Gas
Transmission Line
Length (km)
690
Cost estimate ($
billion)
Status
Under Construction
1630
1640
2.5
Under Negotiations
813
310
200
1174
0.19
N/A
Operational
Operational
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Transport Cost (1000 km)
0.8
0.7
$/MBTU
0.6
0.5
0.4
0.3
0.2
0.1
0
10
15
20
25
30
35
Bcm
X70
X80
X100
Fig. 9. Transport cost versus transported natural gas volume for three
types of steel (for 1000 km).
1677
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Fig. 10. South energy corridor supply costs to the Turkish borders.
Table 3
Calculation of the supply cost
From
Azerbaijan
Shah Deniz
Sangachal
Terminal
AzeriGeorgian
borders
To
Distance (km)
Sangachal
Terminal
AzeriGeorgian
borders
GeorgianTurkish
borders
50 (u/w)
0.5
0.058
0.558
442
0.256
0.814
248
0.07
0.143
1.027
840
240 (u/w)
0.4
0.372
0.212
0.772
0.984
442
0.37
0.196
1.55
248
0.07
0.109
1.729
250
0.4
0.111
0.511
1830
0.77
0.81
2.091
IranianTurkish
borders
1550
0.4
0.709
1.109
IraqiTurkish
borders
380
0.4
0.237
0.637
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5. Conclusions
The broader Caspian Region includes signicant
natural gas elds and the existing or planned pipeline
systems can supply the European Unions energy
markets through the south energy corridor with
adequate gas, contributing thus to the security and
diversication of its natural gas supply. The elds of
Shah Deniz in Azerbaijan, Shatlyk in Turkmenistan,
South Pars in Iran and AlAnfal in Iraq have a total
supply potential of 13.85 Tcm. Moreover, the Eastern
Anatolia Natural Gas Transmission Pipeline, the under
construction South Caucasus Pipeline, the under
negotiation Trans-Caspian and IraqTurkey pipelines outline a pipeline network capable of facilitating
the transportation of the regions natural gas to the
West.
The proposed energy corridors supply costs are
competitive to those of the existing European Unions
external natural gas sources. Natural gas from Shah
Deniz (1.027 $/MBTU), South Pars (1.109 $/MBTU)
and AlAnfal (0.637 $/MBTU) is more cost effective
compared to Russian gas from the Volga Region
through the Blue Stream pipeline (1.58 $/MBTU up to
the Turkish borders (OME, 2001)). Additionally, gas
from the Shatlyk eld transported through the Caspian
Sea (1.729 $/MBTU) is in the same order of magnitude
as the Russian gas (Table 3).
Azerbaijan and Iran are the most attractive natural
gas suppliers of the proposed south energy corridor.
Both countries have low supply costs and existing or
under construction export pipeline networks. Turkmenistan apart from its traditional Russian buyers, on the
other hand, is burdened by expensive transit fees
through either Iran or Azerbaijan. Finally, due to lack
of the appropriate infrastructure, Iraqs ability to supply
the energy corridor is impeded, despite the low supply
costs.
Egypt emerges as a potential gas supplier. The latest
discovery of new natural gas elds, converts the country
to a gas net exporter. Currently, Egypt focuses mainly
on shipping LNG to the Mediterranean energy markets.
However, there are prospects for the extension of the
Arab Gas Pipeline, allowing gas exports to Turkey and
further to the European Union.
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Acknowledgement
Mr Eotios Thomaidis is under DEPA S.A. scholarship.
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