Caspian Report - Issue: 07 - Spring 2014

Aura Sabadus
38
other large rival that may enter the
scene, is to offer flexibility and promote
greater integration through appropriate
infrastructure.
It is expected that the price for Caspian gas paid
by Turkish and European customers should be
between 10 to 12% cheaper than that paid for
Russian gas.
Upholding the status quo by insisting
on TPA exemption and failing to develop
interconnectors with reverse
flows connecting regional countries
would not only fall short of Europe’s
diversification goals, but also place
the SGC at a severe disadvantage to
South Stream.
Furthermore, in their drive to secure
further growth and lock in new
markets, the Shah Deniz consortium
should reconsider their ambitions to
expand into Western Europe, which
already benefits from multiple
sources of supply and opt instead to
compete directly with Russia in central
and Eastern Europe, where there
is a greater need for diversification.
Caspian gas can beat off competition
from South Stream, providing it is
supported by flexible transport option
and commercially viable terms.
Commercially attractive
A product is commercially viable if it
brings financial benefits to both buyers
and sellers.
From a seller’s perspective it has
been argued 12 that the choice of TAP
was decidedly more attractive than
its rival Nabucco West. TAP offered
the Shah Deniz consortium a transit
tariff of €3 ($4.11 at April 2014
exchange rate) per 100 km of pipeline,
fractionally cheaper than that
advanced by Nabucco West over the
same distance. TAP was also 459 km
shorter than its competitor, making
for even cheaper tariffs; the investment
needed to build TAP was €4.4
billion ($6 billion) compared to
€6.6 billion ($9 billion) for Nabucco
West. 13
It is expected that the price for Caspian
gas paid by Turkish and European
customers should be between
10 to 12% cheaper than that paid
for Russian gas. The exact values are
not known, nor are the formulae by
which they are determined. However,
it may be assumed that they are
largely linked to the price of oil and,
from a buyer’s point of view, should
be more competitive than those
charged by Russia in the region.
Nonetheless, the commercial viability
of the Southern Gas Corridor
should be seen not only against
present conditions, but also in the
long-term against the impact of two
potential developments: competition
from existing and emerging regional
producers as well as US LNG
and the future of oil indexation.
This subchapter will discuss the viability
of the SGC against these two
developments and reflect on its potential
to bring greater economic
efficiency, its impact on the liber-
12.
Abbasov, S., Ibid.
13.
Ibid.