Adnoc’s XRG unit signed a deal with Azerbaijan on February 3 to acquire a stake in its Southern Gas Corridor company, which owns stakes in Azeri gasfields and pipelines to Turkey and on to Italy.
On the same day, EU regulations phasing out gas imports from Russia came into force. In January, the US supplied 60 per cent of the EU’s liquefied natural gas.
When the Russia-Ukraine war broke out in 2022, rocketing gas prices in Europe to insane levels, the continent woke up to its dependence on Moscow. US President Donald Trump’s threats against Greenland and his use of tariffs as a weapon have now opened eyes in Brussels to the polar opposite risk of over-reliance on US gas.
The continent is seeking to replace gas anyway for climate reasons, with renewable energy, heat pumps, batteries and more efficient buildings. But gas will remain a core part of its energy mix for two decades at least. Heavy industrial uses, and heating across a legacy of millions of buildings, cannot quickly be converted. Using carbon capture and storage, gas can still be compatible with net-zero goals.
LNG is the preferred stopgap. But of the three leading global suppliers, the US could be unreliable, as noted; Australia is too far away and not expanding output; and Qatar has concerns about the continent’s environmental policies and its unwillingness to sign long-term deals. Other exporters, such as the UAE, Nigeria and Canada, are helpful but insufficient.
Where else can Europe look for pipeline gas supplies?
There are seven broad options. Norway is its key supplier, but unlikely to be able to produce much more from its mature fields. Similarly, from North Africa, Algerian gas is hampered by stagnant production and rising domestic consumption, while lack of investment means that Libyan exports have dwindled almost to zero and the country suffers shortages itself.
The East Mediterranean is hampered by political divisions, that make the natural route from Israel and Cyprus to Turkey impossible. Expanded gas output will be swallowed up by close neighbours: Egypt, and perhaps Syria and Lebanon.
A deepwater pipeline from the Eastern Mediterranean to Greece or Italy would be unlikely to attract the financial backing required to make it viable over a lifetime of 20 years or more, into the period when Europe should have decarbonised. A slim chance could be a natural gas pipeline that is later converted to carry hydrogen.
Iran does export some gas to Turkey. But political issues and sanctions, and its own domestic shortages, similarly rule out it out as a major supplier to Europe, despite it holding the world’s second-largest gas reserves.
Iraq, and specifically its Kurdistan region, could export to Turkey, and on to Europe, and discussions have tottered along for more than a decade. Kurdish gas output is enjoying significant expansion with several new projects. Ankara might use the coming expiry of the treaty governing the Iraqi oil pipeline through its territory to seek a wider bargain, including gas supplies.
Again, though, Iraq’s internal demand, political rifts in Iraqi Kurdistan, and Baghdad’s aversion to independent Kurdish exports, will delay and limit any sales.
That leaves the magnificent seventh option: the Caspian and Central Asia. Azerbaijan is already a significant supplier, sending 8 billion cubic metres (bcm) to Europe, out of total EU imports of about 289 bcm.
The Southern Gas Corridor deal is not Adnoc’s first venture in this area. It already holds 30 per cent in Azerbaijan’s offshore Absheron gasfield, and 38 per cent in Turkmenistan’s Block 1, just over the maritime border in the Caspian. The Abu Dhabi state energy major is also discussing participating in Galkynysh in Turkmenistan, probably the world’s fifth-biggest gasfield by remaining reserves.
After decades of being milked by Russia, Ashgabat has sought to diversify export routes. Most of its gas sales now go to China, but have to traverse Uzbekistan and Kazakhstan. The long-planned “Line D”, which would go across mountainous Tajikistan and Kyrgyzstan, has made halting progress. It might not be needed imminently after China signed for the new Power of Siberia 2 pipeline from Russia in September. Probably, Beijing will keep playing Moscow off against Ashgabat.
Turkmenistan’s other option is to go south. Some construction has been done on the first part of the Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline, as far as the western Afghan city of Herat. But with Pakistan and Afghanistan exchanging fire, and Islamabad and New Delhi not even able to agree to play cricket, Tapi’s further prospects look dim.
The royal flush would be to secure a new pipeline link across the Caspian to bring Turkmenistan’s vast reserves through Azerbaijan to Europe. This has stalled on touchy relations between the countries, and Baku’s reluctance to facilitate a competitor. But its own gas resources are insufficient for an intended doubling of Southern Corridor sales. In December, Turkish energy minister Alparslan Bayraktar spoke positively of the long-awaited Trans-Caspian Pipeline.
Turkey is a close ally of Azerbaijan’s. It is of course the pivotal geographic player in any route from the Middle East or Caspian to Europe. It also controls the remaining routes from Russia into south-eastern Europe, the Blue Stream and Turkish Stream pipelines.
It has sought to leverage its position to graduate from a mere transit state to a gas hub: presumably, buying low and selling higher. Development of its own recent Black Sea gas finds, and a big expansion of LNG import capacity, give it flexibility in serving its domestic market.
The politics of all these pipelines across the intricate carpet of Central Asian borders is very tricky. Profitability might also be tough, if gas prices drop sharply with the expected glut of LNG over the next few years. But Adnoc has built an interesting and growing position in strategic assets for Europe’s energy security.
