BACKGROUND: While often less touted than the Trans-Anatolian Natural Gas Pipeline (TANAP) mega-project that will transport Azerbaijani gas across Turkey to Greece for sale in European markets, the AGRI project constitutes a critical second pillar in the effort to create transportation infrastructure for Azerbaijani natural gas to reach Europe. In September 2010, twenty-one months prior Azerbaijan’s signing a binding intergovernmental agreement with Turkey on the construction of TANAP, the Presidents of Azerbaijan, Georgia, Romania and the Prime Minister of Hungary declared their support for the development of the AGRI Project. During the summit of the four heads of state in Baku, the state-owned energy companies of Azerbaijan (SOCAR), Georgia (GOGC), and Romania (Romgaz) signed a Memorandum of Understanding as well as Articles of Association that served as the basis for the formation of a company to oversee the project’s implementation.
In January 2011, the SC AGRI LNG Project Company SRL was registered in Romania with SOCAR, GOGC, and Romgaz as the shareholders. In March 2011, the state-owned Hungarian power company MVM became a shareholder, resulting in each of the four state-owned firms maintaining a 25 percent equity share. In 2012, the AGRI LNG Project Company contracted the UK-based engineering firm Penspen to conduct a feasibility study for the project. Penspen presented its results in December 2014 and, according to GOGC, the AGRI LNG Project Company approved the results of the study in January 2015.
The AGRI system will transport Azerbaijani natural gas via pipeline to Georgia’s Black Sea coast where the gas will be liquefied and delivered by tanker across the Black Sea to a receiving terminal at the Romanian port of Constanta. The LNG will be regasified and transmitted through Romania’s distribution system to Hungary from where it can also be transported to other European markets. The US$ 5 billion project will take nine years to complete and when fully operational will have an initial maximum delivery capacity of 8 bcm annually.
IMPLICATIONS: Against the backdrop of the ongoing Ukraine conflict and Russia’s efforts to redirect gas flows to alter supply and demand balances in EU markets, an inter-ministerial meeting was held in the Romanian capital Bucharest to expedite the development of the AGRI project, an important element in the EU’s energy security program. At the meeting, the Azerbaijani and Romanian energy ministers, the Georgian deputy energy minister, and the Hungarian ambassador to Romania, issued a common declaration of their support for the continuation of the project based on the Penspen feasibility study. The meeting was also attended by representatives of the four respective national energy companies as well as representatives of BP and the European Commission. BP is the largest shareholder in the Phase II development of Azerbaijan’s Shah Deniz natural gas field that will likely supply the AGRI project while the European Commission has listed AGRI among its Projects of Common Interest.
AGRI is intended to secure Romania and Hungary’s gas supplies as well as deliver gas to other Central and Eastern European markets. When Russia cut gas supplies to Ukraine during the 2009 Russia-Ukraine crisis, Romania lost between 34-39 percent of its gas supply while Hungary lost approximately 45 percent of its supply. While Romania has since reduced its overall gas consumption as well as its imports from Russia, Romania’s annual consumption stands now at approximately 12 bcm. Hungary’s annual gas consumption rate is roughly 8.5 bcm. Comprising a significant portion of each nation’s natural gas supply mix, the gas received from AGRI will be a game-changer for Romania and Hungary’s reliability of supply. From Hungary’s existing gas hub at Városföld, Azerbaijani gas could then enter other Central and Eastern European markets through various existing and proposed pipelines.
In his press remarks after the AGRI inter-ministerial meeting, Romania’s Minister of Energy Andrei Gerea made clear AGRI’s geopolitical significance. “We believe that the AGRI project is a component of the southern gas corridor that may make an important contribution to the European energy security,” said Gerea, adding that the ministers had also made an agreement to continue the technical development of the project to increase its capacity. If the AGRI system’s capacity is increased, it could potentially accommodate LNG exports from Turkmenistan. Turkmenistan’s participation in the Southern Gas Corridor has been long stymied by Russian and Iranian opposition to the construction of the undersea Trans-Caspian Pipeline between Turkmenistan and Azerbaijan.
With the sufficient expansion of AGRI’s capacity, it becomes possible to consider Turkmenistan’s participation in the SGC through tanker-borne shipments of Turkmen LNG delivered from Turkmenistan’s Caspian coastal city of Turkmenbashi to Baku. In August 2013, the Turkish construction firm GAP Inşaat began a 4-year port complex development project in Turkmenbashi that will be connected to Turkmenistan’s massive Galkynysh field by an 800 km pipeline.
The transshipment of Turkmen LNG to Europe via the AGRI system would require the development of an additional second leg of the Azerbaijan-Georgia section of the transportation route. Currently, the AGRI system will transport Azerbaijani gas via pipeline to Georgia’s Black Sea coast where the gas will be liquefied. Turkmen LNG arriving to the Baku area would need to be transported by LNG tank truck or potentially by rail, using a system similar to those developed in North East Asian nations for the transport of LNG to their domestic markets.
CONCLUSIONS: While the feasibility of Turkmen LNG entering European markets via the AGRI system will depend on the extent to which technical advancements in overland LNG transport place the option within the realm of commercial affordability, it will also be a test of the amount of political will that exists in Brussels as well as in European and Caspian Basin capitals to ensure that Turkmenistan becomes integrated into the EU energy architecture. Such a development would be in Brussels’ and Baku’s long-term strategic interests as Azerbaijan’s existing gas reserves will be depleted in 40 years if exploitation continues at the current rate. Nevertheless, the furtherance of the AGRI project and the recent progress in TANAP’s construction create the prospect that Azerbaijan will now have two different delivery routes to Europe. As a result, Azerbaijan’s strategy to develop Western stakeholders in its political sovereignty through the construction of energy infrastructure appears to be on more solid diplomatic footing.
AUTHOR’S BIO: Micha’el Tanchum is a Senior Fellow with the Eurasian Energy Futures Initiative at the Atlantic Council.
Image Attribution: Wikimedia Commons & Boris Ajeganov