Interview with Michael Hoffmann, Director of External Affairs and Communications, Trans Adriatic Pipeline (TAP) project

By Ioannis Michaletos

Trans Adriatic Pipeline (TAP) is a proposed pipeline project to transport natural gas from the Caspian and Middle East regions via a new gas transportation route starting in Greece via Albania and the Adriatic Sea to Italy and further to Western Europe. TAP is considered to be the shortest route in the Southern Gas Corridor, linking Europe to new sources of gas in the Caspian and Middle East regions.The pipeline will start in Greece near Thessaloniki, cross Albania and the Adriatic Sea and come ashore in Italy near Brindisi.

Shareholders of the Trans Adriatic Pipeline are EGL (Switzerland, 42.5%), Statoil (Norway, 42.5%), E.ON Ruhrgas (Germany, 15%).

Interview with Michael Hoffmann: Director of External Affairs and Communications of T.A.P

Ioannis Michaletos: What is the main driving force behind the creation of the TAP pipeline?

Michael Hoffmann: This is really a question for TAP’s shareholders – EGL, Statoil and E.ON. However, from my point of view, I would say that the main driving force is the exciting prospect of opening up the Southern Gas Corridor via a new transportation route that will connect new energy sources in the Caspian to the European markets. 

We in TAP believe that our team is developing the most viable and economic gas pipeline project with many advantages compared to other projects in the Southern Gas Corridor, and that’s our motivation.

 I.M: What are the most recent developments in relation to the source of supply for the pipeline?

Are you considering only Caspian region, or also Middle East, Central Asia or other regions as potential sources of supply? In particular, what is the TAP project’s position in relation to Iran? 

M.H: At the moment, our main target is the gas from the second stage of Azerbaijan’s Shah Deniz II field. TAP offers a realistic and commercially viable transportation route for bringing this gas to the European market.

The initial capacity of TAP will be 10 bcm per year which precisely matches the volumes that Shah Deniz II can offer for export to European markets.

As additional gas volumes become available from Azerbaijan or even other countries, such as Iraq or Turkmenistan, for example, TAP will be able to expand its capacity to 20 bcm at marginal additional cost.

This integrated flexibility to expand on demand will allow TAP to adjust to the existing supply volumes and, therefore, offer competitive tariffs.

TAP has no plans to use Iranian gas to fill the pipeline. Our shareholders have clearly stated their position on this last year (15 September 2010) by saying that “the pipeline will not transport any Iranian gas under the current political circumstances.”

I.M:What role will Turkey play in enabling successful transportation of gas from Azerbaijan to the EU countries? 

M.H: Clearly, Turkey is a key transit country for all projects in the Southern Gas Corridor aiming to reach European markets. TAP sees the Memorandum of Understanding signed between Turkey and Azerbaijan (on 7th June 2010) as a major achievement and great step forward.

The agreement, as we understand it, establishes the price and volume of gas from Shah Deniz phase 2 and is important in setting the framework for transit of this gas through Turkey.

The Shah Deniz consortium plans to sell its gas at the Turkish – Greek border. In this context TAP is an interconnector that will link into the existing infrastructure. Once Shah Deniz II gas comes on stream, it will (in line with the Turkish/Azeri agreement mentioned above) be transited through the existing gas network in Turkey and delivered at the Turkish – Greek border, then it will enter Greece, and that’s where the actual TAP pipeline begins.

Therefore, TAP makes the best use of the existing infrastructure in Turkey for transportation of Azeri gas, unlike Nabucco, which plans to build a completely new transportation system for this purpose.

The math is simple – using existing infrastructure is significantly cheaper and requires lower capital investment and ensures more attractive tariffs for the shippers of gas.

Turkey has a long history in pipeline construction, maintenance and gas industries. We are confident that Turkey (BOTAS) will deliver the necessary upgrades and provide reliable infrastructure for the transportation of gas from Azerbaijan.

Moreover, BOTAS has been associated with large and complicated infrastructure projects in the past, such as the Baku-Tbilisi-Ceyhan (BTC) pipeline, which demonstrates that Turkey is more than competent to deliver.

I.M:What are the main technical challenges for the construction of the TAP pipeline and could any environmental concerns delay the project? 

M.H: From very early on, TAP initiated a thorough study of potential technical and environmental challenges. In addition, we selected the European Bank for Reconstruction and Development (EBRD) performance requirements as our benchmark as they represent the highest current international standards.

So far, TAP’s specialists have conducted surveys of the various pipeline routing options in Albania and Italy. In these countries the best route has been identified avoiding natural reserves and protected areas. We also started the route optimization study in Greece last year.

The offshore survey in the Adriatic Sea in 2009 selected the optimal route with the shallowest offshore crossing at 820 metres of water depth, which is far less technically challenging than other projects.

As far as construction is concerned, TAP finds itself in a very comfortable situation thanks to its shareholders who have some of the best technical expertise in pipeline laying in the world.

For example, E.ON Ruhrgas has constructed more than 11,000 km of pipelines across Europe and Statoil over 8,000 km of pipeline systems offshore. Our shareholders are world class energy companies who also have a solid record of corporate and social responsibility, as well as environmental protection and safety.

In terms of financing, the sheer size of the capital bases of our shareholders and the positive credit ratings these companies enjoy, add to the viability of TAP.

As a project, backed by such solid private companies, TAP doesn’t require any grants or public financing from the EU or from national governments in order to build the pipeline or make it commercially attractive. This financial security is especially important considering the current difficult economic climate worldwide.

I.M: What support does your project receive from the European Union?

M.H: TAP has an ongoing constructive dialogue with various EU institutions and particularly with the Energy Commission at all levels and we have a representative based in Brussels to support our activities.

As the demand for energy in Europe is predicted to grow steadily, the European Union has set a strategic goal of securing additional energy supplies from alternative sources to Europe. The Southern Gas Corridor has been identified as one of the new routes and key energy infrastructure priorities for 2020 and beyond.

The European Union considers the Trans Adriatic Pipeline as part of the Southern Gas Corridor and the project is officially recognized under the so-called TEN-E (Trans-European Energy Networks) guidelines as a Project of Common Interest for the European Union’s overall energy policy objectives.

TAP supports the EU Commission’s energy goals and policies and contributes to their implementation, as best as it can, on the basis of sound commercial principles.

We believe our project is especially attractive to the EU because of its unique features – significant physical reverse flow, option to develop underground gas storage in Albania, the ability to easily double the pipeline capacity (to 20 bcm) and opportunities to connect to the South-Eastern Europe and Balkan region.

Physical reverse flow of up to 8 bcm per year can become especially crucial in emergency situations, such as the Russian-Ukrainian gas crisis two years ago. If something similar happens again, TAP can re-direct the gas flow, activate a net of interconnectors along the TAP route, or link to Algerian and Libyan sources, for example, to make sure that South-Eastern Europe always has access to energy supply.

TAP will install several ‘tie-in’ points along the pipeline to accommodate spur-lines for the transportation of gas into the Balkan and wider South East European energy markets.

For example, gas supplies transported through TAP will be able to access Bulgaria through a link to the proposed Interconnector Greece Bulgaria (IGB), and can reach Croatia, Serbia and Hungary through a connection to the proposed Ionian Adriatic Pipeline (IAP).

In this way, TAP can help open a new gas market in the Balkan region and integrate the Balkan Energy Ring into the EU energy market. Remember that TAP’s shareholders are the only ones who have committed gas supplies (up to 1bcm) to the Balkans.

So, if you look at a map, you can see clearly that it is not merely about bringing energy from one point to another via Greece, Albania and Italy.

On a wider scale, it’s about creating energy security for Europe and the South-Eastern Europe region in particular. Only TAP can achieve this in a realistic manner.

I.M: Do you think that political tensions between the transit countries, like Turkey and Greece, for example, could be a hindrance to the TAP project?

M.H: We do not get involved or comment on political relations between countries. We have always enjoyed good cooperation with the governments of these countries and a lot of interest in the project has been expressed by all sides.

Both Turkey and Greece have high ambitions of becoming energy hubs in the region and important players as energy highways to Europe. TAP brings an opportunity to find common ground and build mutually beneficial partnerships in the region whilst supporting both countries’ development ambitions in the field of energy.

I.M: In case TAP is realised, will that have an influence on the progress of other projects such as the South Stream, or Nabucco? Could all pipelines be built at the same time or is there enough gas only for one project?

M.H: The question is not about “if” all projects can be realized, the question is more about “when?”

In the long term, the wider Caspian and Middle Eastern regions can provide enough gas to fill all the pipelines, allowing all projects to co-exist.

Really, the question is about which project will be built first and who will be the first to open the Southern Gas Corridor?

In short, this is the project that is the most advanced technically and whose shareholders offer the best price for the gas from Shah Deniz II. We strongly believe that only TAP can offer this.

Given TAP’s technical and commercial advantages, we, of course, consider our project to be the cornerstone and first building block of the Southern Gas Corridor. But I am sure you will eventually see the realization of additional projects in the Southern Gas Corridor  as the need for energy in Europe will continue to grow and therefore the demand for new sources of gas becomes ever greater.

I.M: Is it likely that new shareholders will join TAP project in the future?

M.H: As you know, last year, Germany’s E.ON Ruhrgas joined Swiss EGL and Norwegian Statoil in our project. It was a very positive development for us, because E.ON Ruhrgas brings considerable expertise in project development and pipeline laying, and it is one of Europe’s largest energy companies, which provides trust and confidence in TAP’s ability to be realised.

Our shareholders have always said that the project is open to any interested parties. TAP is happy to welcome strong partners, which can contribute to the further success of the project.

I.M: Lastly, I would like to ask if TAP considers a possibility of merging with other competing projects, for financial or political reasons?

M.H: Theoretically, a merger could be possible, but any such ideas would need to be in line with TAP’s strategy to provide a commercially and technically viable transportation route for Shah Deniz II gas to European markets.

I would not like to speculate any further on whether such an idea would be possible or not, but would simply say that TAP has always been open to discuss appropriate co-operation and our shareholders welcomes any potential investors.