Dividends from TANAP – connecting EU and Mediterranean energy markets

Dividends from TANAP – connecting EU and Mediterranean energy markets

Economy
09 October 2019, 15:03 77
After the Trans-Anatolian Natural Gas Pipeline (TANAP) is fully operational, up to $1.45 billion in revenue will be generated from gas transportation, TANAP CEO Saltuk Duzyol said at a press conference held in Istanbul. According to the TANAP CEO, Azerbaijan will receive 58 percent of the revenues. Duzyol added that Azerbaijan will also receive income from the transportation of its gas via TANAP. He added that the launch of the pipeline allows Turkey to reduce dependence on Russia's gas.
 
But can these dividends be considered acceptable? In what way can Azerbaijan's potential revenue from this project vary in the future?
 
Energy expert Zafar Valiyev said that after launching TANAP, the volumes of gas produced in Azerbaijan’s gas fields in the Caspian Sea will be exported to the European and Turkish markets. The pipeline links EU and Mediterranean energy markets in the Caspian region and is a platform for cooperation in gas production. Currently, Azerbaijan's proven gas reserves are about 2.6 trillion cubic meters. Turkey, Georgia and EU markets are realistic sales markets for gas produced from these fields. The increasing European demand for gas in the years to come, makes supplying EU markets with Azerbaijani gas important. Last year, Europe's total demand for gas was 543 billion cubic meters. Approximately 349 billion cubic meters of this was imported from outside of Europe. This fact alone gives the impression that in the coming years, the production volumes of countries, such as the Netherlands and Denmark will decline. In other words, Europe’s demand for gas will increase significantly. In this sense, it is advisable for Azerbaijan to secure a market share in Europe through the Southern Gas Corridor. The question is how much gas will cost on the world market in the coming years. Since 2018, gas supply in the Asian and European markets has exceeded demand. When there was a sharp drop in oil prices in 2014, investors began investing in this area. Only a part of TANAP is operational for the time being. Russia has launched its Trans-Baltic pipeline. In other words, there are many projects directed to European markets, and new factories are under construction. All these factors have a negative impact on the price of gas on the world markets. In the future, the market will determine our revenues by export volumes. In any case, we will generate significant revenues from the volumes of gas we export. But it must be considered that oil prices have always been more expensive than gas prices. That is, in the coming years, revenues will be determined based on economic indicators. TANAP is considered one of the most expensive projects in the world in recent years. Capital investment is more than 40 billion. In general, Azerbaijan will benefit from this project. The amount of these revenues will vary depending on the market situation,” he said.
 
Economist Parviz Heydarov underscored TANAP as the second largest project in the region after the "Contract of the Century”. "TANAP is of great importance for Azerbaijan in terms of its strategic and economic effectiveness. Azerbaijan was the one to directly initiate the project. Therefore, the main financial burden falls on Azerbaijan. When the project was just an idea on paper, it had very few supporters. There were even those who considered it unprofitable. Therefore, Azerbaijan has shown a great principle in the implementation of TANAP. Once TANAP is launched, it will once again become clear that it is highly profitable. The project was launched not only to export Azerbaijani gas to the European market but is also strategically important in providing great transit opportunities for Western countries, including the United States. I can say with certainty that we will make great profits from this platform. So, these figures may be considered acceptable for now. It is no exception that this indicator will increase in the future. TANAP will continue the role of the Baku-Tbilisi-Ceyhan pipeline in Azerbaijan’s development,” the economist noted.
 
According to Fikrat Yusifov, PhD, these figures were foreseen. "Azerbaijan will gain great profit as an initiator after the TANAP project is launched. When the final decision was made to launch the project, Azerbaijan's revenues from gas export were almost certain. In general, this project is very important for us today in terms of strengthening the country's financial position. It would be better to invest a large portion of the project's revenue in the non-oil sector. It is important that the revenues generated from oil and gas are directed to the non-oil sector. In general, TANAP has great prospects. There are suggestions to export gas from neighboring countries to the European markets through this pipeline. This perspective was foreseen. Now this perspective is very near to completion. Unless there are certain obstacles in the political context, Azerbaijan can make a great profit,” he said.
 
Shabnam Mehdizade