Caspian Report - Issue: 07 - Spring 2014

Aura Sabadus
44
The Southern Gas Corridor provides
balanced state and private participation,
which can guarantee greater
stability and reduce risks. However,
it is important to note that Turkey’s
current representation in the project
is exclusively through its state companies
– the transmission system
operator BOTAS and its oil and gas
incumbent TPAO may enhance the
political vulnerability of the SGC.
Sensitive topics such as Turkey’s
and Azerbaijan’s stance towards Armenia
could place Ankara and Baku
in a difficult relation to one another
and enhance the potential for political
spill-over into the energy sector.
Since Turkey will be a crucial link
in the Southern Gas Corridor, as
well as an important recipient of
its gas, neither Turkey itself nor
the partners involved in the project
can afford to incur political risks.
For that reason, the Turkish government
ought to be encouraged to
take a back seat, allowing the private
sector to establish itself as a
buffer against the consequences of
possible disputes emerging at state
level. Admittedly, the Turkish government
hinted in February at the
possibility of putting up part of its
20% stake in TANAP for privatisation,
but since then there have been
no further developments.
Compared to other regional
projects, notably Russia’s supply
of gas through existing and upcoming
infrastructure such as South
Stream, the Southern Gas Corridor
offers not only lower political risks
thanks to the participation of public
and private companies, but also
establishes itself as a much-needed
link between east and west. This
connection will, on the one hand,
allow Azerbaijan and possibly other
gas-rich Caspian countries such as
Kazakhstan or Turkmenistan as
well as Middle Eastern or Levantine
producers to gain a foothold
in Turkey and the EU, and on the
other open up exceptional trading
opportunities deep into Eurasia for
Turkey and Europe.
Conclusion
The Southern Gas Corridor is being
hailed as the successful outcome
of Europe’s diversification quest
along its south eastern flank. It offers
the prospect of cheaper prices
than those asked by Russia and is
less politically vulnerable thanks to a
balanced participation of public and
private companies.
However, the emergence of the
Moscow-backed South Stream following
political tensions between
Russia and its neighbouring transit
country, Ukraine, could raise serious
uncertainties for regional gas supply
ventures. In its current format – a 16
bcm/year project – the Southern Gas
Corridor will find it difficult to rival
the 63 bcm/year South Stream both
in terms of market share and pricing.
While Russia can afford to hand out
price discounts to loyal political clients,
the Southern Gas Corridor does
not enjoy that luxury.
In this context, the only way for the
Southern Gas Corridor to beat off
competition is to offer everything
that Russia cannot: a more flexible
infrastructure that reaches out not
only to Southern Europe but also