Russia versus Azerbaijan – political pipelines

John Batchelor and Lou Ann Hammond talk about the political pipeline

There’s a reason Vladimir Putin is interested in President Trump and Ukraine. He is losing the dependence on Russian natural gas with the finding of gas in Azerbaijan and a proposed pipeline to Italy.

Even though President Trump has given coal companies more leniency than previous Presidents, coal is decreasing in demand globally. Natural gas and renewable (electricity through solar panels and wind, and hydrogen) infrastructures are being put in place. In the United States, we hear about the electric infrastructure and the hydrogen highway, but in Europe, there is a new set of pipelines going from Azerbaijan to Italy.

Brenda Shaffer, from Georgetown University, knows the intricacies, “The Trans-Atlantic Pipeline is a shared infrastructure of $40 billion going through seven countries, six regulatory systems, twelve investors, twelve natural gas buyers. As John Batchelor pointed out in the same podcast, “this corridor is a security gem, providing energy, almost double the energy, to NATO, bypassing the dependence on Russia. It is now part of NATO’s future.”

The International Energy Agency (IEA) is forecasting an increase in demand for Natural Gas, mainly triggered by the power and industrial sectors, specifically electricity generation. IEA says that Natural gas will remain the main fuel for power generation. Its growth is linked in part to its environmental benefits relative to other fossil fuels, particularly for air quality as well as greenhouse gas emissions.

Natural gas remained the first fuel for power generation with a share of 32%, followed by coal (30%), nuclear (20%), and renewables (17%). However, the renewable share is increasing quickly. The demand for natural gas went down slightly because of renewables, the only energy that is cleaner than natural gas for electricity generation.

Why Natural Gasoline? Why Now?

Growth from frontier countries, to third-world countries to civilized societies in measured in Gross Domestic Product (GDP). GDP increases with the ability to manufacture faster. Sometimes faster means using dirty energy. The Holy Grail of growth is when the GDP outpaces the use of energy, and when that energy represents clean energy for clean air quality. The last couple of years the IEA has reported that overall GDP has disconnected from energy usage. That is part of the reason you see so many countries moving away from coal into cleaner fossil fuels and renewables.

New pipeline projects offer diversification of trade routes and buyers and sellers

There are three pipelines coming on board that will create more competition for Russia in Europe. All three pipelines energy originate in Azerbaijan and will go through some landlocked countries:

1. South Caucasus Pipeline Expansion (SCPX) from Azerbaijan through Georgia – 95% complete
2. Trans-Anatolian Pipeline (TANAP) through Turkey – 90% complete
3. Trans-Adriatic Pipeline (TAP) through Greece, Albania, and Italy – 70% complete

The South Caucasus Pipeline Expansion (SCPX) from Azerbaijan through Georgia will allow the export capacity to Turkey to triple in size. This project is Phase 2 of the Shah Deniz field in Azerbaijan, the largest natural gas field in Azerbaijan. It is in the South Caspian Sea, off the coast of Azerbaijan. The Shah Deniz is also connected with downstream development of the Trans-Anatolian Pipeline (TANAP) through Turkey, and Trans-Adriatic Pipeline (TAP) through Greece, Albania, and Italy.

Shah Deniz Phase 2 is due to deliver its first gas by the end of 2018 and gradually increase its capacity over the coming years. At the time of writing, the SCPX project is over 95% complete (SCP, 2018), TANAP is over 90% (the first section connecting Ankara was launched in mid-June 2018) and TAP is close to 70%.

IEA says that TAP is expected to deliver its first gas to Italy by 2020 (TAP, 2018). These new infrastructures will add a maximum of 16 Billion cubic meters (bcm) per year of additional capacity to Europe – 6 for Turkey and up to 10 for southeast Europe and Italy.

Could Azerbaijan be the next Mexico?

Think about this, Azerbaijan has no taxes, no import tariffs. NAFTA consists of Canada, the United States of America, and Mexico. The Mercusor includes Mexico and the rest of South America. The pivotal country is Mexico. Mexico can trade in South America and North America. Mexico has made manufacturing a pivotal part of its comeback and indispensable to auto manufacturing.

If this new trade association goes well over the years Russia will have to contend with Azerbaijan being a competitor in many industries.