Greece - TAP Indicates Invulnerability to Greek Financial Worries

12 Jul 2011 • by Natalie Aster

BMI View: TAP's financial flexibility bodes well for the pipeline, although Greece's financial contribution was hardly the key issue for the project's feasibility. It remains to be seen how TAP's fortunes will play out, as all eyes remain on Azerbaijan: the source of most, if not all, future Southern Corridor feedstock gas.

The Trans-Adriatic Pipeline (TAP) consortium is attempting to make itself invulnerable to ongoing financial problems in Greece. The consortium's managing director, Kjetil Tungland, told Reuters on July 1 2011 that its shareholders were prepared to build and finance an independent pipeline system should cooperation with Greek firms present 'too much financial risk'.

The TAP consortium - comprising Switzerland's EGL (42.5%), Norway's Statoil (42.5%) and Germany's E.ON Ruhrgas (15%) - is looking to build a 10bn cubic metre (bcm) gas pipeline that would run 520km from Thessaloniki in Greece to San Foca in Italy, traversing Albania and the Adriatic Sea. San Foca is located near Brindisi, the site of a proposed LNG import terminal project being led by BG Group.

In essence, the consortium is removing the need for a Greek financial contribution to the pipeline. Tungland said that, under such a scenario, Greece would not be responsible for covering the estimated EUR1.5bn it would cost to build the Greek section of the TAP pipeline, but would still accrue a similar amount in annual transit tariff revenues. The statement by the consortium is no doubt in response to the recent EU bailout of the Greek economy. Greece's government debt is currently equivalent to 160% of GDP, and the country's parliament recently approved a EUR28bn austerity programme. Clearly, Athens has little to no funds available for infrastructure projects such as the Greek section of TAP. Tungland's statement suggests that not only will TAP be unaffected by Greece's financial difficulties, but the possibility of transit revenues is likely to ensure that the consortium receives approval for the pipeline's construction through Greek territory.

TAP is one of several so-called 'Southern Corridor' projects that seek to connect Western Europe with Caspian-region natural gas - the others are Nabucco and the Italy-Turkey-Greece Interconnector (ITGI). TAP is to be fed with gas from Azerbaijan's Shah Deniz-II project, which will generate about 16bcm of gas starting in 2017. In the past year, the TAP consortium has reported progress on the pipeline's engineering studies and said in November 2010 that route surveys had begun. TAP has also struck deals with Bosnia's BH-Gas and Croatia's Plinacro on an offshoot pipeline ('Ionian Adriatic') to deliver gas supplies to Croatia, Bosnia-Herzegovina, Montenegro and Albania.

TAP may yet emerge as either an independent pipeline or a southern extension to the Russia-backed South Stream pipeline. The key issue remains feedstock gas, as TAP would require 62% of Shah Deniz-II's volumes. Given the competition from Nabucco and ITGI for this gas, it remains to be seen how TAP's fortunes will play out.

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