SOCAR Turkey CEO: TANAP to create 15,000 jobs

by Andrew Jay Rosenbaum

ISTANBUL

Kenan Yavuz, Turkey CEO of the State Oil Company of Azerbaijan, runs the Trans Anatolian Natural Gas Pipeline (TANAP) project. He told Anadolu Agency about how the project will affect energy supplies in Europe and Middle East.

Anadolu Agency (AA): What are the major changes that will be seen when TANAP is completed? What will be the effect on the energy supply in Europe, Middle East and Asia? What economic changes do you foresee?

Kenan Yavuz: The Southern Gas Corridor (SGC) and TANAP are not just energy projects and have an important role in the energy policies of the EU. These projects will enhance the economic and political stability and integrity of the region without any doubt. Azerbaijan and Turkey are the most important players and will provide territorial integrity by this project.

TANAP will enhance the supply security and diversity of Turkish and European markets. There are two off-take points through the TANAP system in Eskisehir and Thrace which are quite close to its major consumption centers. Turkey will gain great operational flexibility and reduce its capital expenditure requirements to upgrade its local transmission network.

Turkey and South East European countries face significant gas shortages from time to time from the Russian Federation due to the problems which are often associated with the transit countries. TANAP will be a cure to the gas shortage problems of Turkey and the European countries. Given the level of their import dependence on Russian gas, it will be the South East European countries that will benefit most from the Southern Gas Corridor of which TANAP constitutes the most important part.

TANAP will also be a transportation platform for other supply sources in the Middle East and Asia. Additional gas may come from other gas fields of Azerbaijan in the Caspian, Turkmenistan, Iraq and Eastern Mediterranean. Although it is an approved gas for the moment (subject to sanctions), Iranian gas may also be considered in the future as a potential source of supply depending upon certain developments in international politics.

We should not forget that the volumes to be transported by TANAP will only be complementary given the substantial gas demand in Turkey and Europe. An additional 16 billion cubic meters of gas from alternative gas supply sources will just be a “flavor in the soup”. However, the opening up of this new supply corridor will bring gas-to-gas competition and increase the consumer surplus in both Turkish and European markets.

When we say Southern Gas Corridor, we are actually talking about the gas supply chain with a total investment of $45 billion: TANAP, together with other midstream investments in the supply chain, South Caucasus and Trans Adriatic.

Pipelines and upstream investment made for the Shah Deniz Stage 2 Gas Field Development have a great potential to create new employment and business opportunities. We do expect the TANAP project to create new jobs for at least 15,000 people directly or indirectly during the investment period. We also expect significant transportation revenue for its shareholders and tax revenue for the country during the operational period.

It is also worth mentioning the spinoff effects of these investments on the economies of the countries involved in this value chain.

AA: What are the most important challenges to the completion of TANAP?

Kenan Yavuz: We are currently investing in one of the longest and largest diameter pipelines ever been built in the world.

The pipeline traverses 20 provinces, 67 districts and nearly 600 villages with different social and demographic characteristics and almost 60 percent of the pipeline will have to be laid in a hilly to mountainous terrain. The first 600 kilometers from east to west is at a 2,000-meter altitude on average. In certain sections of the pipeline, the season for route construction is limited to only 110 days, and we have only three construction seasons to build the pipeline.

The 56-inch diameter pipes to be used in construction are approximately 12-13 meters in length and 8.5 to 9 tons in weight, factors which bring additional logistic and constructability problems. We will have to use specific construction equipment such as D9 type side booms with 90 tons lifting capacity for pipe laying. We have 4,400 crossings only for the 56-inch section of our pipeline with watercourses, roads, railways, pipelines, power lines, buried cables, water and sewage systems and similar infrastructures.

We have a high risk of hitting previously undiscovered archeological remains. There are 106 previously unknown archeological sites.

In the TANAP project, we will apply the highest quality, health and safety, environmental and social standards applicable in the sector which makes our project much more challenging.

AA: Why will Turkish Stream have no effect on TANAP?

Kenan Yavuz: As TANAP, we have already signed our Gas Transportation Agreements for 16 billion cubic meters annual transportation capacity for 15 years with a fixed tariff. Turkey has become a part of the TANAP project, not only as a shipper, but also a major investor with a 30 percent stake. By doing that, Turkey has already made its decision. Turkey supports the Turkish Stream Project as a cure for the gas shortages it faces almost every year in its West Line due to the conflict between the Russian Federation and its transit country Ukraine. In other words, Turkey hopes to off-take an equivalent amount of gas or a bit more from the Turkish Stream unless otherwise it would off-take from the West Line.

In the light of this information, Turkish Stream can only be a rival to TANAP when we consider a capacity expansion in TANAP. In the long run, if capacity expansion takes place, investment decisions of potential upstream and midstream players will be shaped up by the level of price competition to be created between the two supply chains. Shippers aiming to reach their customers in Turkish and European gas markets through TANAP or Turkish Stream will be willing to obtain the most competitive prices and therefore force both upstream and midstream players to reduce their costs.

No matter what, TANAP is the only project which brings not only route but also supply diversity for European end users. In this respect, it is not difficult to say that it has no rivals.

AA: How is managing TANAP different than other projects? 

Kenan Yavuz: TANAP is a project which is fully equity-financed by its shareholders. Financing an oil and gas project of this scale with equity is only what makes this project different from the others.

Governance of TANAP is somewhat different from other similar oil and gas projects where shareholders normally designate a technical and commercial operator among themselves to execute the project on their behalf. At TANAP, we don’t have that type of management philosophy. Instead, an integrated project management team led by a CEO, appointed by the Board of Directors, is fully responsible for execution of the Project with the assistance of an Engineering, Procurement and Construction Management Company.

Final decision-making authority as usual is the Board of Directors where existing shareholders, SGC (58 percent), BOTAS (30 percent) and BP (12 percent) are represented by six, three, and one member respectively.

Two state-owned companies, SGC (represented by SOCAR), and BOTAS control 88 percent of the shares at TANAP. Most decisions are taken by simple majority which means the majority shareholder has greater influence in management decisions. Some critical decisions, however, require qualified majority or unanimity.

At TANAP, we also have committees where all shareholders are represented in a way similar to the Board of Directors. These committees enable our shareholders to get involved in the process to some degree and increase the transparency in procurement and contracting.