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Pipe Dreams: Why the Southern Gas Corridor will not reduce EU dependency on Russia

Brussels – The Southern Gas Corridor [*], the EU’s new pet energy project, is not only unnecessary in light of gas demand projections, but also seems likely to fall short on the much flaunted goal of bringing energy independence from Russia, according to a new NGO study “Pipe Dreams” published today.

The authors of the study are CEE Bankwatch Network, Re:Common, Platform, and urgewald.

The study is available online here:
http://bankwatch.org/sites/default/files/PipeDreams-LukOil-21Jan2015.pdf

Photos from the study are available here:
http://stories.bankwatch.org/azerbaijan

According to calculations included in the study, the 16 billion cubic meters of gas yearly planned to be brought into Europe via the Southern Gas Corridor might not be necessary after all. The EU already has an overall surplus of gas import infrastructure. According to European Commission scenarios, natural gas imports to Europe are expected to decrease by 2050 under all scenarios included in the EU 2050 energy roadmap. This means that the infrastructure surplus will just widen over the next decades, potentially meaning that a costly mega-structure such as the Southern Gas Corridor will turn into a liability.

Despite the Southern Gas Corridor being touted as Europe’s solution to reduce energy dependency on an unreliable Russia, the irony is that the project involves Russian company Lukoil benefiting from 950 million US dollars worth of loans from the EBRD and the Asian Development Bank for the development of the Shah Deniz field. Since 2014, Lukoil has been a target of EU and US sanctions alongside other Russian companies. Lukoil, a long-term EBRD beneficiary, has a dismal environmental and human rights record at its past operations in Russia, one notable example being the destruction of Komi lands by spills.

In another vulnerability of the gas corridor, turning Azerbaijan into the new gas supplier for Europe only leads to strengthening an authoritarian regime that over the past months has undergone one of its most abusive stages, arbitrarily imprisoning a number of high-profile opposition figures. Arguably, Azeri President Ilham Aliev has been able to tighten the grip at home not in the least because he emerged as a potential more important ally following the Russian invasion of Ukraine.

“The Southern Gas Corridor is actually a corridor of abuses leading from the Caspian into Europe,” comments Pippa Gallop from Bankwatch, one of the authors of the study. “From arbitrary arrests in Azerbaijan, to expected militarisation in Turkey along the route similar to what we have seen with the Baku-Tblisi-Ceyhan pipeline, to companies apparently trying to ignore court rulings in Italy in order to push for the pipeline. This is no way for Europe to ensure its energy independence, it’s just switching our dependency from one authoritarian ruler to another.”

“Ever since the Russian invasion, the Commission has repeatedly emphasised that the best way to ensure energy independence is via reducing demand,” adds Klara Sikorova from Bankwatch, another author. “In central and eastern Europe, the most vulnerable region to Russia’s energy whims, the energy savings potential is huge. If the EU has the money for such a mammoth project as the Southern Gas Pipeline, why doesn’t it spend it on measures which are cheaper and safer such as energy efficiency? This looks an awful lot like blindness if not hypocrisy and dirty lobbying.”

In brief about the Southern Gas Corridor:

Estimated to cost 45 billion US dollars, the Southern Gas Corridor is a chain of projects meant to bring gas to Europe from the Shah Deniz offshore gas field in Azerbaijan, owned by British Petroleum, Russia’s Lukoil and Azerbaijan’s SOCAR. The corridor would pass through Georgia, Turkey, Greece, Albania and Italy to other EU markets, and consists of the South Caucasus Pipeline extension, Trans-Anatolian Pipeline (TANAP), Trans-Adriatic Pipeline (TAP) and other branch lines. Turkmen gas may become a part of the equation at a later stage.

The Southern Gas Corridor is set to be backed with public money via the Connecting Europe Facility, potentially the European Investment Bank (EIB) and the Project Bonds Initiative, and indirectly via a loan by the European Bank for Reconstruction and Development (EBRD) to Lukoil for the second phase of developments at Shah Deniz, a loan set to be approved in early 2015. It is one of the most important projects on the EU list of Projects of Common Interest which are to receive political and financial backing in the following period.

For more information, contact:

Klara Sikorova
CEE Bankwatch Network
+ (420) 274 822 150, Ext. 27
klara.sikorova@bankwatch.org

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