The decision of the Shah Deniz consortium last June to move forward with the Trans-Adriatic Pipeline (TAP) that will bring Azeri natural gas to Europe brought to life the vision of the Southern Gas Corridor that will help diversify Europe’s sources of natural gas. At first glance, it would appear that by selecting TAP over Nabucco as the European leg of the Corridor, the Shah Deniz consortium has undercut the decade-old effort to diversify Central Europe’s heavily Russian-gas dependent economies with the help of gas from the Caspian region. Upon deeper reflection, however, this is not necessarily the case.

Though TAP bypasses the Balkan and Central European countries that comprised Nabucco’s route, viable options remain to diversify Bulgaria, Romania, Hungary, and Austria away from their current monopolist supplier, Russia’s Gazprom. Such options will help these countries strengthen their security of gas supplies and their negotiating positions vis-á-vis Gazprom, which will remain an important natural gas supplier to Europe for decades.

Some Western strategists lament what they view as TAP’s lesser geopolitical significance compared with Nabucco. They rightly argue that Nabucco would diversify natural gas supplies to Central and Southeast European countries that currently suffer from an 80% to 100% dependence on Gazprom, which has contributed to higher domestic prices and geopolitical vulnerabilities.

But despite this geopolitical advantage, Nabucco failed for a complex variety of reasons, mostly commercial in nature. Consequently, several of Central Europe’s key industries will continue to suffer from a serious competitive disadvantage due to higher wholesale gas prices compared to well-diversified Western Europe. Some countries in the region are soon up for renegotiations of their long-term gas supply contracts with Russia’s Gazprom. While Russian gas cannot be substituted entirely, these countries crave security of supply and negotiating leverage in the form of access to alternative sources of gas supply.


So what are the options now for these Southeastern and Central European countries? They can secure diversification via three major avenues, all interrelated:

  • Developing natural gas interconnections within the region and with Western Europe to ensure that the benefits of market liquidity and hub-based pricing make their way to Central Europe; this will eliminate isolated markets that can be easily divided and conquered by a monopoly.
  • Creating access to LNG supplies via a terminal at Krk, Croatia, from a wide variety of countries, including the U.S.
  • Connecting TAP with Bulgaria (via the Interconnector Greece-Bulgaria) and eventually the Western Balkans (via the prospective Ionian-Adriatic Pipeline or IAP), in keeping with the Shah Deniz consortium’s current commercial ambitions.

Taken together, these three approaches form the backbone of a North-South Gas Corridor linking all of Central Europe’s gas systems from Poland to Croatia. The basic concept is not new: it has been around since the inception of the New European Transmission System (NETS) project championed by Hungarian energy company MOL in the mid-2000s. The corridor’s northern end, the Swinoujscie LNG terminal in Poland, is already under construction and should be ready by the end of 2014. Interconnectors between Poland and Slovakia, as well as Slovakia and Hungary, are in the making. A key additional step would be to establish reverse flow on the pipeline currently connecting Ukraine to Slovakia, on which discussions are already under way.

Bickering and meddling

With Nabucco’s defeat, the big missing piece in this North-South Corridor is new sources of supply. Two major projects can deliver such supplies into the network of gas interconnections that is now emerging in Europe: TAP itself (when it becomes connected to Central and East Europe at a later stage) and the planned LNG terminal in Krk, Croatia.

The Croatian LNG terminal would be the quickest option to improve the whole region’s natural gas supply security. But in order to realize the project, the Croatian and regional governments have to back it up unequivocally and with vigor.

Yet, unfortunately, Croatia is sending contradictory signals to international partners and investors about its strategic priorities. A case in point is Croatia’s misguided acquiescence to building a branch from Serbia to South Stream, Gazprom’s project to protect its monopoly in Central and Eastern Europe. While more supply route options seem attractive at first sight, betting on multiple projects at once can prove self-defeating eventually. Prioritizing and sequencing therefore is of crucial importance.

Mercifully, after years of paralysis because of both domestic Croatian political bickering and external (mainly Russian) meddling, the LNG project’s prospects have improved lately.  Croatia’s domestic political impasse may finally be clearing, thanks to the Milanovic government’s ambition for Croatia to become an energy transit gateway into Central and Eastern Europe. Croatian Economy Minister Vrdoljak has signaled the government’s intention to sign an agreement on the Krk terminal by the end of this year. If all goes well the terminal can be ready to receive shipments by 2016 the latest.

Urgent boost

TAP is now also moving ahead under its own commercial momentum. As Shah Deniz consortium members negotiate the pipeline’s final legal and other technical details, they are also looking toward options for connecting TAP with Bulgaria (via an Interconnector between Greece and Bulgaria) and with the Western Balkans via IAP. Given sufficient quantities from the Caspian, TAP-IAP could also add to supplies in the Western Balkans and in Central Europe by the early 2020s.

Croatia would now be wise to indicate to prospective investors and to Brussels that it is fully committed to Krk LNG as a top priority and a matter of urgency. The Croatian LNG terminal requires an urgent boost from regional governments and from the European Union. The Croatian government, together with the commercial consortia that will develop both projects, should ask the European Union to designate the LNG terminal and also IAP as Projects of Common Interest (PCI), thereby securing co-financing from the EU’s Connecting Europe Facility – similar to the funding Swinoujscie received.

Given their interest in diversifying their own supplies of natural gas and helping the EU establish a single and unified European energy market, the Visegrad countries (Hungary, Poland, the Czech Republic, and Slovakia) coupled with Romania, Bulgaria, and Ukraine, should support Croatia’s effort to achieve the PCI status. The consortia developing both projects should pursue gas sales/purchase commitments from key regional consumers like Ukraine, Slovakia and Hungary. Adding reverse flow capability to the Hungarian-Croatian interconnector will allow LNG from Krk, as well as Azerbaijani gas from TAP, to reach Central Europe.


An additional key factor in realizing the full potential of a North-South Corridor for European natural gas transit is securing lower cost supplies of LNG. One of the world’s most prospective future suppliers of low-cost LNG is the United States. Thanks to the revolution in shale gas production, the U.S. has emerged as one of the world’s largest natural gas producers.  An excess of supply coupled with the world’s most liquid natural gas trading system are keeping domestic gas prices low in the U.S.

Market forces are driving U.S. companies to seek opportunities to export LNG to higher priced markets in Europe and Asia.  But, federal regulations and legislation currently restrict U.S. LNG exports in a bid to boost American industries (especially petrochemicals) by locking in cheap natural gas within the U.S.  If Washington yields to the same market forces that generated the boom in U.S. natural gas production, U.S. LNG could provide that crucial supply of low-cost natural gas that will help ensure the success of Europe’s emerging North-South Corridor.

The Visegrad-Plus group and the EU should encourage the adoption of the LNG for NATO bill proposed by then-Senator Lugar in 2012, which is now being pressed forward by Senator Barrasso and Representative Turner. This would allow expedited licensing for LNG exports to NATO allies, (placing such countries on an equal footing with other countries with which the U.S. enjoys a free trade agreement). Increasing available supplies to Europe that help reduce prices and diversify Central Europe’s access to energy supplies would be a strategic victory for the transatlantic alliance.

David Koranyi is deputy director of the Atlantic Council’s Dinu Patriciu Eurasia Center. Ian Brzezinski is senior fellow with the Atlantic Council’s Brent Scowcroft Center on International Security. Ambassador Matthew Bryza is a senior fellow with the Atlantic Council’s Dinu Patriciu Eurasia Center and director of the International Centre for Defence Studies in Tallinn. This piece first appeared on Energy Post.

Related Experts: David Koranyi, Ian Brzezinski, and Matthew Bryza