The Southern Gas Corridor is a Blind Alley

Uncle Volodya says, “In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get control, and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.”

Subsequent to Moscow’s abrupt cancellation of the South Stream pipeline, there has been a mad scramble on the part of the EU. And the miracle solution they have hit upon is called the Southern Gas Corridor. The hype currently being devoted to it suggests it is a clever new idea by Brussels which has snatched victory from the jaws of defeat.

I wouldn’t want anyone to go on thinking that.

The Southern Gas Corridor Project has actually been ongoing since 2003, in that lackadaisical way European projects have of consuming money without really yielding any tangible results – let’s recall, we live in an age when consultancy is a growth industry. Three different pipeline projects started off competing for what Brussels euphemistically terms its initiative to diversify its energy supplies: one of them was Nabucco, which until recently was as dead as Thomas Jefferson, although now would be a perfect opportunity for the dithering Europeans to revive it so they could talk about it for another 11 years without building anything.

Back then, the Europeans liked to strut about and flap their arms and say that Russia was wasting its time building South Stream, because Nabucco was going to render it as useless as a chocolate teapot. As recently as Spring 2010, hopefuls still reported that Nabucco was “on track to meet its target date for first deliveries in 2014.” Well, I mustn’t be a pessimist – they still have about a week and a half to lay around 3,800 km of pipeline, considering not so much as a meter of it was ever built.

I really wanted to leave the part that makes me laugh the most until later; you know, for flow and stuff, so the post wouldn’t seem jerky. But since I have been described as jerky myself on occasion, and because I am just a child at heart and have no self-discipline, I have to let you in on it right now – do you know where this gas is coming from, the gas that the EU figures is going to put the whip in its hand so it can bring Russia firmly in line whenever it gets uppity? Azerbaijan. No, I am not fucking with you. Seriously. The partner that Brussels is courting, that will free it from the grasping energy-as-a-weapon talons of the craaaazy dictator, Vladimir “Bad Vlad” Putin (for the hip western journalists who don’t know the diminutive for “Vladimir” is “Vova” and not Vlad), is Azerbaijan. Back then, its President was Ilham Aliyev. And I be go to hell if he isn’t still the President; apparently the awarding of the title “Most Corrupt Person of 2012” by the Organized Crime and Corruption Reporting Project was not discouraging enough for Azeris to vote him out. So Brussels, in its eagerness to buy gas from anyone but Vladimir Putin, is pinning its hopes upon an individual who, together with his family, has been “systematically grabbing shares of the most profitable businesses in Azerbaijan for many years”. Well, never mind – maybe Billions in gas revenues will not be profitable enough to attract his attention. Ha, ha, ha…sorry, I couldn’t help it. Anyway, Romania was the one who pulled a Bulgaria on Nabucco and kilt it stone dead. Fed up with the endless debating and wrangling that characterizes EU projects in which everyone has to be made to feel important so they’re not guilt-stricken about taking full per diem and staying in fancy hotels, Romania pulled the plug and opted out. Why? Because the EU had to fund Nabucco – no nice Gazprom to build it for them at its own expense – and it was horribly expensive, they couldn’t count on getting enough gas through it to make it worthwhile, TANAP (the Trans-Anatolian Pipeline) was much cheaper and more practical, and China strolled in whilst the EU was arguing with itself and kicked them in the goolies, sealing a deal for Turkmen gas which precluded Nabucco hooking up at Baku to boost the volume with additional supplies. Another triumph for bureaucracy.

How much money was wasted on Nabucco? Hard to say; you have to figure in the costs of all the meetings and fact-finding missions, tenders that were put out for competition but never let, consultations, more meetings, briefs and working papers that had to be prepared. The principals have kept their expenditures very close to the chest, and I’d love to know, but I’d be willing to bet a couple of hundred million Euros got spent. And in the end…zip. Nothing. So when we speak now of the Southern Gas Corridor, we’re talking about TANAP. And probably a couple of other modifications Brussels is kicking around or auditioning. And Brussels is still very, very interested in a different pipeline, although it is kicking itself for the smug way it kept trying to back Moscow into a corner until Putin just gave up on the whole idea. Well, not publicly, but it pretended to be surprised that Russia would react that way, and quickly became the soul of cooperation and held a flurry of meetings on South Stream which were perfectly useless, since Russia didn’t show up.

Why is it so important to Europe that it rely on anyone else for energy but Russia? Several reasons, according to The European Commission’s Policy Towards the Southern Gas Corridor: Between National Interests and Economic Fundamentals, by Nicolo Sartori, January 2012 (not linkable, but you can look it up by that title). Apart from the possibility that it could inspire greater EU loyalty in East-European members who are currently very dependent on Russia, natural gas is the fossil fuel whose consumption is expected to grow at the fastest pace globally. Although indigenous supply still constitutes the bulk of the EU’s gas market, that is projected to change dramatically over the next two decades as both Dutch and British North Sea reserves deplete at an accelerated pace.  The EU’s imported supplies come from just three sources: Russia, Norway, and Algeria. The decline of the Norwegian energy industry was the talk of 2014. Russia is by far the largest foreign supplier. The Fukushima nuclear disaster scared both Germany and Italy white, and both energy-hungry nations are forecast to build no new nuclear power plants while Germany will close all its existing stations by 2022.

Here, from Sartori’s paper I already cited, are the two projects thought to still have a fighting chance, since Nabucco was really always just a pipe dream (see what I did there?). Remember, TAP and TANAP are not the same thing; TAP is the Trans-Adriatic Pipeline, which would be a part of the overall effort.

ITGI is a project led by the Franco-Italian energy firm Edison and the Greek state-owned gas company DEPA. The project comprises the already operational Interconnector Turkey-Greece pipeline (ITG), which has a transport capacity of about 11.5 bcm per year, and the proposed 800km long Interconnector Greece-Italy pipeline (IGI). The latter, expected to have a transport capacity of about 10 bcm a year, will be composed of two sections: a 600km onshore pipeline crossing Greek territory, and the 200km Poseidon pipeline running across the Ionian seabed. According to the consortium, the project’s capacity could be upgraded to 20 bcm in case of further supplies from the Caspian region. Estimated realization costs vary between 1.5 and 2 billion dollars.

TAP, proposed by the Swiss firm EGL in collaboration with the German E.ON and the Norwegian national energy company Statoil, will link Greece to Italy’s southern coasts, near the port city of Brindisi. The pipeline’s 680km onshore section will pass through Greece and then Albania, while the 105km offshore part will cross the Adriatic Sea in its shallowest and shortest stretch. The initial capacity of the pipeline is expected to be about 10 bcm a year – expandable to 20 bcm – with a reverse flow capacity of up to 8.5 bcm to supply Albania and Greece in case of need. TAP realization costs are officially estimated to be around 1.5 billion dollars.

As you can see, both these projects propose a maximum capacity of 20 bcm (Billion Cubic Meters) per year. Nabucco, along with its other grand flights of fancy, was projected to carry 31 bcm per year. A couple of problems with that, though: one, it was not expected by its designers to be able to do that – through phased capacity increases – until 2020. Two, it was not expected to be able to do that ever by anyone else, because that amount exceeds the Shah Deniz field’s capacity. Initial flows for Gazprom’s South Stream were projected to be 15.7 bcm per year, with full capacity of 63 bcm to be reached by 2019. So as the people pulling down the big paycheques bat ideas around – on the unforgiving doorstep of what promises to be a cold winter – the plan slowly emerging is to go ahead with the BP-led project for a 3,500 km pipeline which will supply – at least initially – one-sixth the gas that South Stream would have provided.

If you were starting to think that the lengths to which Brussels and the EU Commission will go to avoid buying gas from Putin are…a little…crazy, we are singing from the same song sheet. For starters, it is a given that the costs of the vaunted Southern Gas Corridor are grossly underestimated, since the public will never support that kind of outlay if it knows the true costs, especially since the alternative was paying nothing and getting six times as much gas. Similarly, the completion dates will be wildly optimistic, in view of the fact it took them 11 years of arguing over a pipeline which would take nearly the identical route and they built none of it (although, to be fair, some on the European end is existing pipeline which needs only to be linked to the source), because Europeans are apt to get a little swivelly over the idea of dealing with inadequate gas supplies for a decade or so. And, probably neither last nor least, the public will have to be told some truly monumental, Texas-sized lies to prevent them being worried by the fact that their source supplier was rated the most corrupt leader in the world only 3 years ago by one of their own pet NGO’s.

The EU threw stumbling-blocks under Gazprom’s feet until it got its way, and made Putin give up on the construction of South Stream, with its ridiculous insistence that Gazprom’s pipeline could not be owned by Gazprom (European pipelines which carry gas from offshore fields are given the special exemption of “field pipes” and the companies which provide the gas also own the pipelines) and that it must reserve half its capacity for the use of competitors. Then it blamed Putin for cancelling without giving it reasonable warning, and its latest stage of denial is to optimistically propose that it can still be built, Russia just needs to come back to the bargaining table. If I lived in Europe, I would be looking for sales on sweaters and blankets.

I always loved John Steinbeck for his ability to reach through muddy layers and pluck out, like a shining bauble, that perfect quote which summed up the situation in a manner that made the senseless make sense. Can you do it for us now, John? “Sometimes a man wants to be stupid if it lets him do a thing his cleverness forbids.”

I knew you could.