London — Azerbaijan's state-owned Socar has turned its attention to "phase two" of the Southern Gas Corridor (SGC), including bringing in new sources of gas supply to feed the project and finding new buyer markets in Europe, a senior company official said late Feb. 16.
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Elshad Nassirov, Socar's vice president or investment and marketing, said gas could be sourced from Turkmenistan and Israel in the future, while the SGC could also see gas flowed to new markets in the Balkans.
"In this phase, Socar aims to reach additional markets and transit gas from additional locations, as well as developing Azerbaijan's gas resources," Nassirov said on an Atlantic Council webinar.
"Azerbaijan is prepared to transit gas from multiple sources without discrimination," he said. "Energy is never used as a coercive political tool."
The SGC -- designed to bring gas from Azerbaijan into southern Europe in part to help reduce the region's dependence on Russian imports -- is now complete, with first gas having flowed to Italy via TAP at the end of 2020.
The corridor comprises the 16 Bcm/year BP-operated Shah Deniz 2 field offshore Azerbaijan, the expanded South Caucasus Pipeline via Georgia, the TANAP pipeline in Turkey and the 10 Bcm/year TAP link via Greece and Albania to Italy.
Nassirov said the final budget of the project came in at $33 billion, well below the original $45 billion price tag.
Nassirov said that additional gas resources offshore Azerbaijan could flow via the SGC in the future, as could gas from Turkmenistan.
Baku and Ashgabat made a major breakthrough last month when they signed a landmark agreement to jointly develop the Dostluk field that spans the border between the two countries' maritime zones in the Caspian Sea.
The agreement ended a 30-year dispute between Azerbaijan and Turkmenistan as to which country had the rights to develop the field, formerly known as Kepez in Azerbaijan and Sardar in Turkmenistan.
Nassirov said the deal would not have been possible without the signing in August 2018 of the Convention of the Legal Status of the Caspian Sea, the completion of the SGC and the end of the Armenia-Azerbaijan war in November last year.
"This new cooperation with Turkmenistan will open up more opportunities for Central Asian gas to also join the SGC," he said.
The name of the field was changed last year to Dostluk -- meaning friendship -- ahead of talks expected to resolve the long-standing dispute.
Nassirov said that under the 2018 Convention, a gas pipeline could be built between two gas fields in the Caspian Sea without the need for a separate environmental assessment.
He added that ultimately it would be up to Turkmenistan to decide how to develop its gas resources, adding that gas from Turkmenistan had already reached Turkey in the past via Iran.
Israel could also be a future source of gas to flow through the SGC, he said.
"Israeli gas to Turkey and then entering TANAP with swaps in the Turkish market is commercially the most viable option to export gas from the East Mediterranean into Europe and we support that option," he said.
At present, only 10 Bcm/year of gas reaches Europe via TAP, which Nassirov described as "modest" measured against overall European gas demand.
"It's not a game changer from a volume point of view, but it is a game changer from a supplier diversification perspective," he said.
"This is its unique energy security and geopolitical contribution."
He also said it had helped to increase liquidity on the Italian PSV market. "The Italian market had long been illiquid and prices at PSV were higher than at other hubs in continental Europe," he said.
"Liquidity is improved, meaning PSV assessments are now a more reliable guide to the Italian price," he said.
The PSV day-ahead price enjoyed regular discounts to its TTF equivalent in 2020, according to S&P Global Platts price assessments, though this was the result of more competitive oil-indexed supplies from North Africa due to the oil price fall.
With TAP only starting to flow to Italy since Dec. 31 last year, its impact on the PSV is yet to be fully gauged, though the PSV day-ahead contract traded at a discount to the TTF in late January and early February, in part due to cold weather in northwestern Europe.
TAP accounted for just 3.4% of the Italian gas supply mix in January, according to data from S&P Global Platts Analytics.
In the future, SGC could also flow gas to the Balkan region. In December, the European Commissioner for Neighborhood and Enlargement, Oliver Varhelyi, said the EU was "keen" to explore the possible extension of the SGC to the Western Balkans.
The Western Balkans covers countries such as Albania, Bosnia and Herzegovina, Montenegro, North Macedonia and Kosovo.
Nassirov also said the SGC had changed the dynamics of the Turkish gas market, adding a further 6 Bcm/year of supply from Azerbaijan on top of its existing contracted deliveries.
Azerbaijan, he said, was now Turkey's number one gas supplier.
In the future, Armenia could also be a market for Azeri gas.
He added that a blend of up to 20% hydrogen could flow through TANAP in the future, and that the pipeline was already technically ready to carry hydrogen.