2nd International Forum of SOCAR "Downstream in Caspian and Central Asia Trade, Logistics, Oil Refining, Petrochemicals Baku, Azerbaijan (2017)

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1 2nd International Forum of SOCAR "Downstream in Caspian and Central Asia Trade, Logistics, Oil Refining, Petrochemicals Baku, Azerbaijan (2017) "Southern Gas Corridor: Successfully Heading into the Final Stage" Ilgar Gurbanov Research Fellow Centre for Strategic Studies under the President of the Republic of Azerbaijan

Southern Gas Corridor (SGC) "Joint Declaration on the Southern Gas Corridor" (2011) between the EU and Azerbaijan was a solid legal foundation for smooth implementation of the SGC project; The SGC

2 Southern Gas Corridor (SGC) "Joint Declaration on the Southern Gas Corridor" (2011) between the EU and Azerbaijan was a solid legal foundation for smooth implementation of the SGC project; The SGC includes: the expansion of the South Caucasus Pipeline (SCPx) through Azerbaijan & Georgia; the Trans-Anatolian Natural Gas Pipeline (TANAP) across Turkey from the Turkish-Georgian border to the Turkish-Greek border; the Trans- Adriatic Pipeline (TAP) though Greece, Albania and into Italy. The total investment for the SGC is calculated to be around $40 billion with a total length of 3,500 km. The main source of gas is Azerbaijan s giant Shah Deniz II field with an estimated 1.13 trillion cubic meter of gas.

Shah-Deniz Stage 2 is a giant project that will add a further 16 billion cubic meters per year (bcm/y) of gas production to the approximately 9 bcm/a produced by Shah-Deniz Stage

3 Shah-Deniz Stage 2 is a giant project that will add a further 16 billion cubic meters per year (bcm/y) of gas production to the approximately 9 bcm/a produced by Shah-Deniz Stage 1. From there, additional pipeline systems will deliver 6 bcm/a of gas to Turkey and a further 10 bcm/a of gas to markets in Europe, in a route known as the Southern Gas Corridor.

4 South Caucasus Gas Pipeline (SCP) - (691km) was built to export Shah-Deniz stage I gas from Azerbaijan to Georgia and Turkey (operational since late 2006) where it is linked to the Turkish gas distribution system. So SCP has a dual operatorship with BP (technical operator) being responsible for construction and operation of the SCP facilities and SOCAR (commercial operator) is responsible for SCP's business administration. SCP s shareholders are: BP (28.8%), SOCAR (10.0%), TPAO (19%), Petronas (15.5), Lukoil (10%), NICO (10%) and SGC Midstream (6.7%).

The expansion of the South Caucasus Pipeline (SCPx) by laying of new pipeline across Azerbaijan and the construction of two new compressor stations in Georgia.

5 The expansion of the South Caucasus Pipeline (SCPx) by laying of new pipeline across Azerbaijan and the construction of two new compressor stations in Georgia. At the border between Georgia and Turkey, the pipeline will link into other new pipelines to provide gas into Turkey and the European Union. Final Investment Decision on the SCPx project was taken in December 2013, along with decision on Shah-Deniz Stage 2. Main construction works have continued at both of the Compressor Stations (90% complete) and the Metering Station (80% complete) in Georgia.

6 The aim of the Trans Anatolian Natural Gas Pipeline Project (TANAP) is to bring 16bcm/y of natural gas produced from Azerbaijan s Shah Deniz-2 gas field, primarily to Turkey, but also on to Europe. TANAP (1850km) will run from the Turkish border with Georgia and ends at the Greek border in the İpsala district. From this point, the TAP Pipeline will connect to convey natural gas to European nations. TANAP s shareholders: Southern Gas Corridor CJSC (SGC CJSC 58%), BOTAS (30%) and BP (12%). SGC-CJSC is 51% state-owned and 49% owned by SOCAR.

Trans Adriatic Pipeline (TAP) connecting with the TANAP at the Greek-Turkish border, will cross Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian

7 Trans Adriatic Pipeline (TAP) connecting with the TANAP at the Greek-Turkish border, will cross Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian natural gas network. TAP (878km) is currently in its construction phase, which started in TAP's initial capacity of 10 bcm/a. In future, the addition of two extra compressor stations could double throughput to more than 20 bcm as additional energy supplies come on stream in the wider Caspian region.

8 Trans Adriatic Pipeline s advantages Physical reverse flow feature, allowing gas from Italy to be diverted to South East Europe if energy supplies are disrupted. Advantages for the countries involved: employment and investment in Greece and Albania; development of Albania s gas infrastructure; stimulate the economies of Southeast Europe; will enable Italy to became an energy hub and further transit country to deliver gas to western European markets; will link Bulgaria and Albania, FYROM, Croatia, Bosnia-Herzegovina. Those are new markets and SOCAR would have a chance to invest in infrastructure and downstream market as it has been successfully doing in Georgia, Romania, Ukraine and Switzerland. TAP will enable Italy to deliver further gas to Austria and Central Europe via Trans-Austria Gas pipeline, Germany and France via Switzerland through reverse flow of TransitGas-TENP pipeline and United Kingdom through Italy, Switzerland, Germany, Netherlands and Belgium by linking grid and interconnector systems of Snam Rete gas and Fluxys.

Opportunities for SOCAR to focus on Balkan gas markets in Greece (with direct access to consumers through DESFA pipelines), in Bulgaria (through the planned Interconnector Greece-Bulgaria) The gas

9 Opportunities for SOCAR to focus on Balkan gas markets in Greece (with direct access to consumers through DESFA pipelines), in Bulgaria (through the planned Interconnector Greece-Bulgaria) The gas Interconnector Greece-Bulgaria (IGB Pipeline) will provide a direct link between the national natural gas systems of Greece and Bulgaria with an Entry Point in the vicinity of Komotini and an Exit Point in the vicinity of Stara Zagora; The natural gas can be delivered to Central Europe by constructing the Greece-Bulgaria and Bulgaria-Romania interconnectors, and then gas might be delivered to Hungary through existing Hungarian-Romanian interconnector.

In the future, Balkan States Albania, Montenegro, Bosnia and Herzegovina and Croatia can benefit of TAP through the implementation of planned Ionian- Adriatic Pipeline (IAP) from

10 In the future, Balkan States Albania, Montenegro, Bosnia and Herzegovina and Croatia can benefit of TAP through the implementation of planned Ionian- Adriatic Pipeline (IAP) from Albania to Croatia; In August 2016, government representatives of Montenegro, Albania, Croatia and Bosnia and Herzegovina have signed a MoU with SOCAR regarding the construction of the IAP.

11 How to finance the SGC SOCAR s stakes in the SGC s key links (SD-II, SCPx, TANAP, TAP) will be partially financed (51%) by Azerbaijan s State Oil Fund; the remaining funding (49%) will be raised by SOCAR, mostly by receiving external financial support from international financial institutions; World Bank - $800 million for TANAP; Asian Development Bank - $1 billion for Shah-Deniz II; Asian Infrastructure and Investment Bank - $600 million for TANAP; European Bank for Reconstruction and Development to allocate 1.5 billion for TAP and TANAP projects; European Investment Bank - 1 billion and 2 billion, respectively, for TANAP and TAP; The SGC s remaining funding is expected to be distributed by other commercial banks and financial institutions and the EU s Connecting Europe Facility; Azerbaijan has managed to raise 1 billion in euro-bonds on the international financial markets to fund the SGC s segments.

12 Current situation on the SGC The groundbreaking ceremonies of the Trans-Anatolian Pipeline (TANAP) and the Trans- Adriatic Pipeline (TAP) in Turkey and Greece on March and May, The SGC has already been more than half completed and it may start delivering gas to Turkey and the EU ahead of schedule; The engineering, procurement, construction works (EPC) in the framework of the Shah- Deniz-II gas field is 90%, while the SCP's expansion in Azerbaijan and Georgia is 80% completed and compressor stations have been installed in Georgia; TANAP is also ahead of schedule with 65% of constructions works completed; TAP Consortium had awarded certain Italian/Greek companies contracts for the EPC works for onshore/offshore sections of TAP in Greece, Albania and Italy, for the construction of compressor stations and pipeline receiving terminal; European Commission has confirmed the compatibility with EU rules of the "Host Government Agreement" between Greece and TAP and granted TAP a specific tax regime for 25 years; Falling oil prices helped the SGC to drop the constructions costs from $45bn to $39bn (TANAP's cost from $11.7bn to $8.5bn14 and TAP s cost down to $6bn; Shah-Deniz-II and the SCP's expansion, currently stands at $23.8bn, with savings of more than $4bn);

13 Challenges for the SGC Divergence of interests with Greek government as of early 2015 on TAP; Continuous delays to the Interconnector-Greece-Bulgaria project; Problems on the Albanian leg of the pipe and complex land expropriation and compensation negotiations with local communities; Protests of local communities against the construction of TAP in Italy s southern region; The Constitutional Referendum in Italy (December 2016) the regional authorities retain their veto powers on using their lands for construction; Anti-TAP campaigns in Europe by certain human rights and environmental NGOs - Counter Balance (Belgium) and CEE Bank-Watch (Czech Republic); Azerbaijan s withdrawal from the EITI and implications for the Southern Gas Corridor;

14 Conclusion Works on SGC's components (TANAP, TAP, Shah-Deniz II, SCPx) is completed more than 60%, is expected to finish ahead of schedule. SGC is crucially important for the EU, since it will contribute to diversifying energy sources and give the energy companies leverage to negotiate gas prices with third suppliers. Ongoing successful realization of the SGC is an example of the "real project management", which was lacked in case of Nabucco project. Additional sources for the SGC from Azerbaijan s Azeri-Chirag-Guneshli, Umid, Babek, Shafag-Asiman, Zafar-Marshal, Absheron, Bulla-Deniz fields and Shah-Deniz stage III fields; Bringing other gas sources online is of crucial importance - potential sources: Iran, Iraq, Mediterranean (Israel), Turkmenistan (Trans-Caspian Pipeline)

The national standards bodies of:

The national standards bodies of: EN 1317 for Vehicle Restraint Systems (VRS) - overview presented by B. Wolfgang Wink Senior Manager International Division Volkmann & Rossbach Germany 16th World Meeting International Road Federation Lisboa