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Transcript by
Federal News Service
Washington, D.C.

STEVEN MANN:  This should be a terrific panel.  This conference itself is a remarkable conference and you have to go back to the early years of the preceding decade to see a conference like this on energy that is so high-powered, that is so timely, in terms of the discussions. 

    I look around the room and so many people, like those of us on the stage, like myself, are veterans of the previous 10 or 15 years of energy discussions.  So this is a – it’s like a “family and friends” event at the Conrad. 

    I’m delighted especially that the Atlantic Council is now getting into the energy game in such a serious way, and I really have the warmest admiration for the Council, in putting together this series of programs for Ambassador Wilson, for Mr. Kempe, for Mr. Patriciu, in attracting what really is a remarkable set of speakers and topics.  

    Now, if this – if the Conrad Ballroom walls could talk, they would echo the pipeline debates of earlier years, and so many of them have taken place in this hotel.  I have a warm glow of nostalgia when I think about all of the pipelines that were argued through in the city of Istanbul here, from early oil, to Western oil, the BTC, Shah Deniz, and then, of course, Blue Stream and the entire range Bosporus bypasses. 

    Now, however, we’re in a very timely position because we can look back at the successes of previous transport schemes and see what worked and what didn’t work.  Yet, there is a new game in the Black Sea Region.  The situation is never static – many things have been changing; new projects are coming on-line.  I would also add we – (audio break) – new governments that have come into the picture in Ukraine, in Turkmenistan, in Iraq in recent years. 

So I had – I’ll also note I had the good fortune to be the U.S. government’s energy envoy for a number of years, and as we look forward to the next phase of energy transport, it’s worth recalling a couple of principles.  It’s worth recalling one, and it’s a phrase I remember from my U.S. government work, and it is:  Nothing is more dangerous than a bureaucrat with a marker.  (Laughter.)  And the point is that, for those of us in government, it’s very easy to draw lines on a map and say which way the energy transport should go. 

One of the principles we had in my government work of those years was that every project we supported had to be commercially sustainable.  And this is why I think our panel today is in a wonderful position to discuss this as very serious energy businessmen.  We have heard the essential government side of the picture – most powerfully from Prime Minister Erdogan, from the prime minister of Georgia, Mr. Gilauri, and from Energy Minister Yildiz; we have heard the production picture in the upstream of the resources; and now we turn to the transport picture. 

    Let me briefly introduce our panelists, who, quite rightly, need no introduction.  So we have – let me start, and work around:  Mr. Eilo Ruggeri of Edison – (audio break) – Kjetil Tungland, an old colleague who is now with trans-Adriatic Pipeline; my friend, Ahmet – (inaudible) – Ahmet Calik, who needs no introduction; and Rovnag Abdullayev, the head of our good friends in SOCAR; and Reinhard Mitschek, a man who is very much in the spotlight in these years for his activities. 

    So let me start, and let me turn to Mr. Calik for some remarks on – (audio break) –

    (Mr. Calik’s remarks are delivered via translator.)

    AHMET CALIK:  Thank you very much.  Thank you very much.  I first would like to say welcome to all the guests, ladies and gentlemen. 

Atlantic Council is an important think-tank for the globe and it’s an honor for me to participate in this conference.  And I would like to extend my gratitude to the panel chair and the co-panelists. 

This forum organized by Atlantic Council covers very topical subjects.  As the moderator has also suggested, I think it is very timely that we discuss these issues now, because Turkey and the East started to be the center of issues like energy and economy, and the East shift goes all the way into Asia nowadays, and this makes Istanbul a more important venue for such occasions.  It’s an honor for me to welcome you to Istanbul and to Turkey. 

    We are discussing how we can move energy to market.  Now, this is an important topic because it has become a priority in the face of the globalization of economy.  I believe that we should also add to this certain concerns for the environment and climate change.  The world keeps getting more connected.  Europe and North America are the main consumers of energy.  On the other hand, Turkey, Balkans, the Caucasus and the Caspian Basin will serve as important suppliers and transmission routes for energy. 

    We have energy-rich neighbors and Turkey stands right between those neighbors and Europe and the Atlantic axis.  Therefore, to be more brief, Turkey is today serving as a strategically important energy transit country, and this is a fact that is accepted and acknowledged by all the world.  Turkey is very sensitive in this issue and Turkey is contributing to the energy topics which are becoming more vulnerable.  On one hand, we want to make use of the opportunities presented by our geostrategic position, but on the other hand we also have to face certain challenges because of our location.  The minister and the ambassador have already emphasized these issues. 

The Turkish Straits are now overloaded with the tanker traffic.  This is a threat to this beautiful geography.  It’s an acknowledged fact, 50,000 tankers cross the Istanbul Straits every year and 40,000 of them carry oil and oil products.  Istanbul is a unique city with a channel running across it and those tankers carry 160 million tons of oil and oil products every year.  When we look at the Istanbul Straits today and the Dardanelles, the traffic seems to be three times the Suez Canal and four times the Panama Canal.  Such a large volume of oil transport is a very important threat to Istanbul.  It is a vital threat, a big danger that we are facing here. 

It’s very important to make sure that we can transmit the oil through pipelines into the Mediterranean and bypass the Istanbul Straits passages.  Therefore, the South-North energy project became an important priority for Turkey.  Calik Energy, which is one of our group companies, has a partnership with Eni for the Samsun-Ceyhan-Adana pipeline, and this is an important element of the project. 

    This is not only a bypass pipeline; it also serves as a new economic and commercial cooperation model between Asia and Europe.  It has 70,000 tons capacity annual, and it foresees the building of a pipeline from the Black Sea to the Mediterranean.  It is a 550-kilometer pipeline and it will pass through the territories of a single country.  And this makes the project very safe as well as very affordable, because we will only pay one transit passage fee.  And this will ensure that Russia and Caspian Sea oil can be transported without going through the Straits, and this will enable a very economic model for the oil transport into the markets. 

    Before I conclude, I would like to state that we, the actors in the industry, acknowledge Turkey’s role and its importance in this matter, and we continue to invest for this purpose.  Energy resources are tools for international cooperation, therefore, we believe that international dialogue plays a key role in these developments.  Our country, the nations of the neighboring countries, and the whole world will benefit from the stability and welfare provided by these resources, and we also believe that we can always contribute to peace through energy. 

    Thank you. 

    MR. MANN:  (Inaudible) – and that’s a clear and forceful statement about an important project. 

    I would like to encourage all of our panelists to follow Mr. Calik’s example of seven-to eight-minute conciseness and forcefulness. 

    Anyway, thank you very much. 

    I’ve noted down some points.  I know the audience will have questions.  But let’s move around, and if I could turn next to Rovnag Abdullayev, who is in a very interesting position as the – (inaudible) – which is fundamentally a producer compared to the other positions of the panelists here. 

    Rovnag, the floor is yours. 

    (Mr. Abdullayaev’s remarks are delivered via translator.)

    ROVNAG ABDULLAYEV:  Thank you very much, distinguished participants, ladies and gentlemen. 

I would like to extend my gratitude to the organizers of this panel.  Azerbaijan is one of the energy suppliers, and a resource-owner, and we have been working very hard to be a safe supplier. 

    I would like to apologize, and I have to switch to Russian language. 

    Azerbaijan is one of the countries which is – the country which is providing the security of the energy supply to Europe.  And Azerbaijan – and SOCAR company is a state company in Azerbaijan which is realizing this policy of our country.  Energy security of Europe is one of the priority questions on our agenda, and SOCAR company is realizing all projects while we are working for –

INTERPRETER:  The speaker needs to decide which language to speak. 

MR. ABDULLAYEV:  Now I will continue in Turkish.  (Inaudible.) 

    Distinguished colleagues, Azerbaijan has very large resources in natural gas and oil.  We have reserves of 5 trillion cubic meters and 2.6 trillion cubic meters of capacity (increase ?).  And mostly in Shah Deniz, two developments play an important role.  We have 1.2 trillion cubic meters there, and at the end of 2016 we will be able to exploit 16 billion cubic meters of gas by 2017. 

We also have new prospective resources that we can exploit with the international energy corporations and one of them is the one in Nakhchivan.  It has 300 billion cubic meters of gas reserves.  There is Absheron in this field.  We have processing with the total company, and we have 300 billion cubic meters.  Asiman and Shafag are also being processed, and it has 1 trillion cubic meters of exploitable reserves.  In ACG, we have deep gas that can be exploited at 300 to 400 (billion) cubic meters.  Umid-Babek, the reserves there is about 400 to 500 billion cubic meters.  

    In Azerbaijan we also have oil reserves, 1.5 billion tons, and this also includes 1.2 billion tons of the ACG fields.  In 2009, the total production of oil was 500 million tons, and in 2010, 52 (million tons), and we’re planning 60 million tons for 2015. 

    While currently in Azerbaijan we have four pipelines to Russia, Georgia, Turkey and Iran, and we supply gas to all those four countries, we also have a railway transport capacity to the Black Sea and the existing infrastructure enables us to transport 80 million tons per year.  In Azerbaijan, we have 50 million tons of exploitable oil, but we can transport 80 million.  This means that – (audio break) – also serve as a transport company – country for other producers. 

You also know very well that Azerbaijan always announces that Azerbaijan can serve as a transit country for other producing countries and we have very transparent tariffs for that.  In 2020, Azerbaijan is planning to develop Shah Deniz Phase 2 and other reserves which will make 25 billion cubic meters of gas in total.  We also believe that this amount of gas can be supplied to the global markets through new transit infrastructure and we need to build this infrastructure in order to export Azeri gas to Europe. 

We have infrastructure going through Georgia and Turkey.  This also includes Nabucco, ITGI and TAP pipelines, together with the – (inaudible) – and the commercial developments.  We plan to start the first transmission by the mid-2011.  And we also have an MOU that is already signed with Turkey for transmission and transit supply, and this means that we have the capacity to export to Europe via Turkey. 

    The gas export strategy of Azerbaijan has three priorities, and we want to transport through the south route and through Turkey, and because of that, we have already started to negotiate with potential buyers.  And our main principle (sp) in Azerbaijan is to make sure that we have commercial revenues from the parties involved in Shah Deniz.  In Shah Deniz Phase 2, after 2016 we are planning to exploit 16 billion (cubic meters), and 6 billion (cubic meters) of this will be marketed in Turkey, and 10 billion (cubic meters) in Europe, and we believe that after 2020 Azerbaijan will have a global export of about 35 to 40 billion cubic meters of gas. 

And because we want to transmit this gas from the south, we will have CNG and the LNG that can be transported to Europe, and we are working on that for (the CNG.  We have an agreement with the Bulgartransgaz, BTG.  It’s a memorandum of understanding and we have already created the groups working on that. 

    MR. MANN:  (Inaudible, off mike) – so we can leave time for questions, especially because you have put in provocative information on CNG and LNG. 

    MR. ABDULLAYEV:  Thank you. 

    We are also working on LNG.  We have Romania, Georgia, and Azerbaijan and Hungary working on this – the AGRI pipeline.  We created – we want to create a new company so that this company will work on the AGRI route. 

And we also have very important agreements with Botash, and through Botash we have transmissions to Turkey.  We also signed agreements for the Shah Deniz gas through – for transmission through Turkey.  And we are working with Botash for transmitting the gas to Europe, and we can easily say that Azerbaijan in 2011 will have a good capacity to transmit gas to Europe. 

Thank you. 

    MR. MANN:  (Inaudible) – questions. 

    Reinhard, let me turn it over to you. 

    REINHARD MITSCHEK:  Thank you, Steven. 

    I would like to thank the organizers, the Atlantic Council, for inviting me. 

    The headline of this session is “Moving Energy to Markets,” and my statement could be very, very easy, very quick, say:  Let’s sign supply agreements and transportation agreements; and let’s simply construct and operate Nabucco; then we have it.  However, life is a bit more complex and therefore I want to highlight some points. 

Nabucco will develop, construct and operate a midstream infrastructure project.  And I want to highlight also the statement from His Excellency, Minister – (inaudible) – saying that this bridging for gas sources and markets is a very big challenge, and that’s true; and in addition, a statement of His Excellency, Minister Yildiz, saying that there is a triangle. 

That’s what it’s all about.  That is, on the one hand, prices, markets, competition.  I mean, a lot of projects are flying around.  We are convinced that Nabucco is the most competitive and most advanced. 

The second is environment.  By that we mean our environment, our landscape, our people, our cities, villages, the social environment.  Nabucco is undertaking a careful social and environmental impact assessment study together with advisers for members and technical advisers. 

    And the third point is security – supply security, Social Security and a predictable, reliable, uninterrupted gas supply.  And that is one of the most important basic elements for the prosperity of the region. 

So we are developing at Nabucco now for quite a while.  This summer we won, and we enhanced pace – (inaudible) – due to two activities or two events:  One was the signing or the ratification of the intergovernmental agreement between the Nabucco countries; and the second was the agreement between Azerbaijan and Turkey – Shah Deniz 1, Shah Deniz 2 transit, et cetera.  They both happened here in Turkey together with the business partners from Azerbaijan, and I think that was really a – that brought huge dynamics to our project. 

And these dynamics are represented by progress in our financing of the project.  We signed three weeks ago mandate letters with IFIs, with European Investment Bank, with EBRD and with IFC in Brussels for due diligence considering in financing volume of round about 4 billion euros.  We contracted the detailed engineering for the whole Nabucco pipeline system for 3,800 kilometers, the last part now in July this year for the sections from Ankara to the Georgian border, and from – (inaudible) – to the Iraqi border.  We made a prequalification for potential vendors for line pipes and valves, et cetera.  We are far advanced with the preparation for an Open Season.  That is a process in which we offer transportation capacity to the markets. 

And now, in August-September, as we all know, the negotiations between suppliers from Azerbaijan, SOCAR Shah Deniz to a consortium (and ?) buyers in Europe started, and that’s a good signal for enhancement.  And that’s a document for a win-win situation for the markets – downstream markets in Turkey and in Europe for the midstream, and for suppliers in Central Asia and in Middle East. 

Because, it’s a win-win situation; we do not consider Turkey as transit country.  Turkey is much more.  We have here quite well advanced and experienced engineers.  We have good projects.  We have material technology.  We have a very ambitious shareholder in Nabucco with Botash.  And in that way every country of Nabucco and also the neighborhood plays an important role for the success of the project. 

And we are convinced that once we can take the final investment decision for Nabucco – and that’s not far, we expect commitments for gas supply even by the end of this year, early next year.  And that will be then the point of no return for supply contracts, transportation contracts and for our – (inaudible) – in Nabucco. 

    And that’s not the only investment here in the region.  That’s 8 billion euro, or $10 billion.  $20 (billion dollars) to $25 billion will be invested in Azerbaijan.  Billions of dollars will be invested in Iraq.  And, of course, all these investments has to be realized means, needs supply of goods, services, engineering, et cetera, and Turkey is in the center of that investment area, together with Azerbaijan.  And Azerbaijan, as the gateway to Central Asia, will play a double role, as also – (inaudible) – highlighted, for supply of gas, and also for the transit. 

    So I’m very optimistic that we can succeed and at least, to a certain extent, for 30 billion cubic meters or even more, answer the question, how to move energy to the markets. 

Thank you very much. 

    MR. MANN:  Thanks very much, Reinhard. 

    Let me turn – Eilo, if we can hear the Edison viewpoint. 

    EILO RUGGERI:  Thank you, Steven. 

Thank you, ladies and gentlemen.  It’s an honor to be here today in front of such a distinguished panel and audience. 

    Well, I would like to start from one consideration coming out from yesterday talks, and then picking up from some inputs that were given by Minister Aliyev and – (inaudible). 

    I think that yesterday outcome was, among the others, that the establishment of a transportation route between the Caspian to Europe through Turkey is a top priority for several reasons that go and stretch beyond the energy environment.  Today it was said it’s time for action.  Well, we endorsed this fully, Minister Aliyev.  And as one said, it’s time for commercial, sound decisions.  So let’s have the industry speak for once and let the politics for once stay a little bit behind the shadow.  So I would like to share with you our points over view starting from this. 

Edison is promoting, together with DEPA, the ITGI project, which is one of the projects that is being discussed in order to bring Azeri gas volumes into European market.  The ITGI project is conceived differently from Nabucco, because we are not thinking of building a new 4,000-kilometer long pipeline from the Georgian and Iraqi border up to Baumgarten.  What we are thinking is to make use of what’s available in terms of transportation capacity throughout the different network. 

So we’re planning to (repower ?) the Turkish network, building on the agreement between Turkey and Azerbaijan of June this year.  We are planning to use the interconnections between Turkey and Greece which is already existing since November, 2007; and we are planning to build only two small piece of new pipelines – one between Greece and Italy, total 800 kilometers; and one between Greece and Bulgaria, IGB. 

Because it’s important to say at the very beginning, ITGI project is a project that allows Azerbaijan gas at the beginning to serve not only the Greek and Italian market, but also the wider Balkans, because the interconnection between Greece and Bulgaria gives the possibility also to serve Romania from Bulgaria, Hungary from Romania, through a series of interconnections which is being built at the moment and co-financed by EU.  So what we say is the ITGI project is partly already there.  Actually, gas is already flowing from Azerbaijan to Greece.  We only need to build the further extension to Italy and Bulgaria.     

Why we think ITGI project provides the best solution to quickly open what has been so called the “Southern Corridor,” obviously because it minimizes investment.  Because, we don’t need to build an entire new pipeline from East to West.  We can just use what’s there.  But also because it’s scale, it’s size – we’re talking of a pipeline between 10 and 12 BCM, fully fits the gas available in Shah Deniz Phase 2. 

    So if the users of the ITGI project, mainly Edison and DEPA but also others, will be able to sign the supply agreements for Shah Deniz Phase 2, there will be no need for complementary gas source.  There will be no need for Iraqi gas – to wait for Iraqi gas or for Turkmenistan gas, or for additional Azeri gas resources.  So immediately after, ITGI could take its final investment decision and secure operation in the same timeline of Shah Deniz production.  I think it’s a priority not only from this region but also for Europe to make sure that, whatever project is implemented, it secures the quickest possible opening of the southern corridor. 

Then why we think we are also a valid solution for opening the Southern Corridor?  Because we have done most of the work that is needed to take final investment decision.  Reinhard was mentioning authorization procedure – (inaudible).  We have already obtained the environmental approvals by the competent Italian and Greek authorities.  We have full regulatory approvals, from the European perspective, to use the – (inaudible) – (exempted ?) capacity.  We have agreements into the Greek market – (inaudible) – We have – (inaudible) – MOU with BOTAS to develop the transit through Turkey. 

    We have completed our engineering.  So the moment in which – hopefully at the end of this year, beginning of next year, Shah Deniz is ready to commit for the sale of the gas, we will be ready to commence to build the investment.  And to offer to Shah Deniz potentially a very high and competitive – (inaudible) – value for this gas, because the cost that we have to depreciate in order to pay transportation tariff are a fraction of bigger scale volume. 

    So our view is that the priorities to open the corridor with a medium-scale project like ITGI that also fill the current need of demand in the European market, because we need to take into consideration that after last year the demand in Europe has collapsed.  We have lost something like 40 billion cubic meters of gas demand in one year and it will take some time to recover.  So there is not any longer a vital urgency for building major new trunk lines.  We can take some more time. 

    So we can build this – we can open this corridor with a medium-sized pipeline.  And then I’m sure that the fact that actually a corridor is working from East to West, and actually it’s been proven to the producer(s) in the region that they can sell the gas in Europe, transit it through Turkey, and still maintain a reasonable margin and be covered by risk will enhance further production in the area; will enhance (sic) the bottlenecking of the current constraint in infrastructure linking Turkmenistan and Azerbaijan; or the resolution of the political framework.  Then additional production for Azerbaijan, new production from Turkmenistan, new production for Iraq, those are such significant countries in terms of gas resources that each one of them alone could provide enough gas to allow for a bigger-scale project to be realized. 

    So in essence, what we are proposing and what we are pushing as a strategy is to have ITGI a first phase of the Southern Corridor and then a big – underpinned by the Shah Deniz gas reserves over Azerbaijan, and then a second phase of the corridor underpinned at a later stage with new production from Turkmenistan, Iraq or Azerbaijan itself at the time when also the European market will need for more demand – for more volumes. 

    MR. MANN:  Thank you very much. 

    We see the beginnings of a debate forming up here. 

    Let me turn to Werner next, who has a very interesting perspective:  producer and transport participant. 

    WERNER AULI:  Welcome to this nice conference, excellencies, ladies and gentlemen. 

    I’m not a pipeline producer.  I’m not a pipeline project like the colleagues before.  Moving energy to the market:  Let’s say some words to the market.  Mr. Celik started it. 

    I’m deeply convinced that gas is definitely the energy of the future, of the next decades.  We see in Europe a downturn from the consumption – (I mention this ?), by the way, the biggest amount is Italy, so Italy is the biggest oversupplied country in Europe now.  But I’m deeply convinced we will see it in 2014, ’15, it will be recovered and we will see the same level that we had before.      And then I would predict we have the same growth that we had before. 

Why?  Natural gas is the main source for the power production in the future for the gas-fired power plants.  It is obvious by the way – (inaudible) – OMV Group we are building huge power plants, for example, in Turkey, and those in Romania, and we will also start construction of a – (inaudible) – power plant probably in Germany.  So this demand will be driven by gas-fired power plants.  And the message out of this is Europe will need much more gas.  Is it 2015?  Is it 2020?  Is it 2025? 

    Coming back to the supply countries:  So Europe is a huge market.  It’s a huge market which needs gas.  There are huge reserves in the Caspian region but also in the Middle East, for example, Iraq.  And I do not want to compare all these competing projects, but it’s obvious they are different projects. 

So Reinhard mentioned the Nabucco project.  This is a highway to the market.  This is third-party access.  Everybody can (full capacity ?), 30 BCM, and a lot of space for all the suppliers to reach the market.  And, by the way, not in overcrowded Italy; it just – (inaudible) – in the heart of Europe in this huge hub in Baumgarten. 

    The other colleagues from ITGI and TAP, these are more or less private pipelines.  Smaller pipelines may be easier to construct, but of course not starting from the Georgian or Iraqi border to the markets starting from Greece to Italy using the Turkish system.
    So there’s a different concept with different, let’s say, perspectives for the future.  One concept is huge amount also for the future, further growth for Azerbaijan, Iraq and Turkmenistan, or a now-dedicated pipeline for one field, for Shah Deniz, to build it. 

    Let’s come back to Turkey.  Can I not mention it?  Nabucco pipeline is also constructed in Turkey.  Clearly, more (than) half of the Nabucco pipeline is constructed in Turkey.  (This) means Nabucco pipeline is 7.9 billion euros, or roughly 8 billion euro, more than half, more than 4 billion euro will be invested in Turkey.  (This) means work for Turkish companies and construction companies, steel companies, all the Turkish companies will be engaged to build this pipe     in Turkey.  And, of course, when Nabucco is ready, there are also some tax incomes from this pipeline coming to Turkey. 

    What is the other benefit of Turkey?  It is the security of supply.  You mentioned in the starting statement that – (inaudible) – company.  Very strong, also engaged in – (inaudible) – projects.  By the way, we have some shares also in the huge fields in the northern part of Iraq.  And, of course, we’re interested for stable (branches ?) to the market with enough capacity also for long-term to increase our capacity to invest in Iraq, Azerbaijan, Turkmenistan, and then bring the gas to the market. 

    So this is the big difference of all these concepts we have seen there, and this means especially for Turkey’s security of supply.  Turkey has a unique position just be surrounded, more or less, from all the reserves of this world and – (inaudible) – the biggest reserves of the gas site(s) are located in the Caspian region, Middle East, Azerbaijan, Turkmenistan, Iraq, Iran.  But they have to be produced, and this means huge investment, Shah Deniz – if I’m right, Shah Deniz 2 is more than $20 billion.  This is not nothing, yeah? 

To invest such a huge amount of money you need a reliable bridge to the market, a strong bridge to the market which is definitely – is able to – (audio break) – to the other side of the market.  And also from the market side, then we have to distribute it in Europe.  No market of Europe is big enough to absorb 10, 20, 30 BCM (in only some ?) years, so you have to distribute it in Europe, and of course our hub in Baumgarten makes it very easy to make this happen. 

Thank you. 

    MR. MANN:  Thank you very much, Werner.  Those are strong arguments. 

    And let me turn to Kjetil to talk trans-Adriatic and set us up for the question phase. 

    KJETIL TUNGLAND:  Thanks a lot, and thanks a lot for allowing me to participate in this very important conference. 

    And like you say, being in Istanbul discussing getting gas from Azerbaijan to the Western markets brings about really a lot of – (inaudible).  When businessmen, shippers, producers, buyers made good politicians and diplomat(s), maybe there were one or two bureaucrats with a marker. 

    MR. MANN:  (Chuckles.) 

    MR. TUNGLAND:  Maybe there are not here any longer.  But they really met and found solutions. 

And, yeah, if these walls could talk.  Actually, I think if these walls could talk, we should listen very, very carefully, because many important decisions and insights were found in the previous phases, and one of them I think is worth remembering.  Because, there were people at the time I was hoping to develop Shah Deniz in full-scale, only one – (inaudible).  But it was decided to do it in phases and stages.  And they were able to find solutions for stage one, the South Caucasus Pipeline to Turkey, and now it’s time for stage two. 

    The companies EGL, Statoil and E.ON has decided to join forces in the trans-Adriatic pipeline project to make a contribution to finding solutions for stage two.  EGL is a Swiss company with a fleet of power plants throughout Europe, including Italy.  Statoil is a Norwegian oil and gas company, having constructed and currently operates the world’s largest network of offshore pipelines – all in all, 8,000 kilometers of off-shore pipelines.  And E.ON is the biggest private energy utility in Europe, having made great contributions to secure diversified supplies to Germany and Europe. 

    What these three companies starting to do is to tailor-make a project to fit – to meet the needs of Shah Deniz Stage 2. 

Now, what are those needs?  We’ve heard that the main plan is to increase capacity with 16 BCM per annum.  Six of those are offered to Turkey and 10 will be offered to buyers in Europe.  Now, to make that come about, the Shah Deniz Consortium would have to shoulder an investment in excess of 20 billion U.S. dollars.  Now, when you’re faced with an investment like that, what you would like to see, I assume, is that there is a secure, cost-efficient access to a sizeable and solid market.  And you would like to cooperate with companies along that value chain – supply chain that you can seriously cooperate and share risks with. 

    Now, what TAP is contributing with is that we are convinced we have found the shortest and most cost-efficient way of linking existing systems with solid markets.  Shah Deniz is preferring to offer gas to Western buyers on the border between Turkey and Greece, and TAP has found the shortest way from that point to the sizeable and solid market of Italy – through Greece and Albania, and over the shallowest point of crossing the Adriatic Sea. 

    Now, these companies, EGL, Statoil and E.ON, every time they have completed one pipeline project the same thing happens.  First thing they do when one project is completed is to start working on how can we debottleneck this?  How can we increase capacity?  How can we improve connectivity and interconnections with other systems? 

    Since that experience always is there, we are now taking this into the base case of the TAP project.  So the TAP project, even if it is designed to meet the needs of Shah Deniz Stage I, 10 billion cubic meters through Italy, we are designing it such that that capacity can very, very easily be increased actually to double the size up to 20 (billion cubic meters).  Likewise, we are designing it such that the gas flow direction can easily be reversed. 

Now, if you combine those two, what TAP can then very easily offer is not only transport of 10 BCM from East to West, but a very easy way of offering gas to the entire Balkan region and the countries in between to let them also enjoy diversification of supplies, emergency backup in case their existing supplies breaks apart or is interrupted, and also the benefits of several suppliers competing to satisfy their consumers. 

    TAP is happy to invite and cooperate with more shippers than three companies currently backing the project.  TAP is happy to accommodate interconnections with more than the countries that we are passing through – Greece, Albania and Italy.  We are happy to accommodate connections to – Bulgaria was mentioned, the former Yugoslav Republic of Macedonia was mentioned; we have ideas to connect north from Albania into Croatia. 

    But, let me underline that – turning back to my first point, we have to rely on making the first step work, and that is to find the most cost-efficient way of getting 10 BCM from Shah Deniz into a sizeable market.  So that’s why that is our base case, but clearly, clearly there are more phases to come and many upsides to this adventure. 

Thank you very much. 

    MR. MANN:  (Off mike.)  Well, thank you very much, and thanks to all of you.  Thanks very much for that.  That’s extremely interesting, especially, I find, the reversibility idea, after the gas crises we’ve had in Europe in the past two years. 

    A warm thanks to all our panelists. 

    Let’s go to questions.  What I want to do is follow Fred Kempe’s dictate yesterday that the questions should be impertinent and provocative.  (Chuckles.)  I would also like – I’d like to ask people to keep them brief; and questions, not statements. 

I sense an impertinent, provocative question over here. 

    Please identify yourself. 

    Q:  (Off mike.) 

MR. MANN:  No. 

Q:  What about now?  It’s good? 

Thank you very much, Mr. Ambassador.  My name is – (inaudible).  I represent EGL Switzerland, and I’m here in this conference invited and I really thank you very much for inviting me to this conference. 

    As you know, EGL, as Kjetil mentioned, is one of the shareholders of TAP.  What I want to say here, everybody mentioned a little bit Adriatic, but full equation when we speak about Caspian and Black Sea, there is another sea between Atlantic Ocean is Adriatic Sea.  And it’s very strategical point because there are two new NATO Allies there – Croatia and Albania. 

And the provocative question from my side is, the only project which passes through energy community, which is extremely important community of seven Western Balkan countries, is TAP, and we have heard –

    MR. MANN:  Your question? 

    Q:  Yeah, question for Mr. Abdullayev. 

We have heard from the last ministerial meeting held in Skopje from energy community that the ministers mentioned there that Azerbaijan is very much interested to supply gas also to the countries of energy community.  And the question is:  For developing the so-called “South-East European ring,” those countries might need 3 BCM, and I want to ask Mr. Abdullayev, is that really that Azerbaijan is committed towards that energy community region?  That’s it.  (In foreign language.) 

    MR. MANN:  Well, let’s – the translators can take care of it.  And let me – let’s ask also, what does a commitment mean in these discussions? 

    MR. ABDULLAYEV:  I can tell you one thing:  We are considering this issue.  Here our – (inaudible) – projects have been presented here and I am one of the suppliers of gas.  And I can say one thing:  We are considering all the projects that on the table, all the projects that exist that are discussed and reported to us. 

And you know that we, at present, our priority is 10 BCM of gas.  And our partners of Shah Deniz, they would like to have this gas in – to see this gas in Europe.  And we are working with all our buyers, with all our suppliers.  We are negotiating with all of them and we have good – (inaudible) – strategy to receive stable, long-term and normal gas market with acceptable prices. 

And, of course, your question was very interesting.  We are very much interested in working with the Balkan countries and we considered this issue at length.  We are working – still working on that.  I cannot give you the answer right now whether – what is our choice right now.  I cannot tell you that. 

    MR. MANN:  (Off mike) – in terms of your commitments. 

    Let me throw in my own impertinent, provocative question quickly.  I’m going to borrow this from John Roberts. 

John, this might be your question. 

Let me ask quickly each of the participants – that we understand your project will be built, but aside from your project, which other transport route – or pipeline, LNG, CNG transport route, which other project do you think has the best chance of being built by 2020? 


    MR. CALIK:  I believe in Ceyhan that we will have the LNG projects put in place.  I believe that there’s going to be a pipeline that can be built there.  I believe other CNG projects can also be realized in the Caspian area.  If we don’t have a pipeline, then we can have a CNG system put in place. 

    Aside from that, in our region I believe that there will be the opportunity of making use of gas reserves.  One of them will be in the Mediterranean Sea, and I think with CNG you could have short-distance options. 

    MR. MANN:  Which pipeline will be built by 2020, or LNG or CNG? 

    MR. CALIK:  As the suppliers of the gas, of course, we have been interested in the diversification of the supplies.  And the more pipelines we have, that means that the more capacities of entering the markets we have.  And we support all the projects that we talk about now, because this provides us the possibility to diversify our supplies. 

    And I think that we have the possibilities of having CNG on the Black Sea and LNG on the Black Sea, which I have mentioned about before.  These projects also have huge capacities, because, once again, I would like to say that Azerbaijan has the possibility to increase the supplies of the gas until the year 2020.  We expect the supplies from 35 to 40 billion cubic meters.  For this we need to find some alternative and long-term rules on the transportation.  Thank you. 

    MR. MANN:  Reinhard?  Well, after Nabucco. 

    MR. MITSCHEK:  Yeah, after Nabucco.  That’s clear for me.  (Chuckles.)  (Laughter.)  I mean, Nabucco will be constructed. 

And I want to make two very brief remarks to my colleagues.  They always emphasize the shortage of the pipelines, and the cost-efficiency, et cetera, however, geography can’t be ignored.  So this distance from Baku to Milano is the same – for Nabucco, for ITGI, for TAP, whatever.  And if TAP and ITGI is a shorter pipeline, then it only means that it does not fully connect sources with markets. 

    MR. MANN:  Okay. 

    MR. MITSCHEK:  So that’s easy for me. 

    MR. MANN:  Now, to the –

    MR. MITSCHEK:  Secondly – 

    MR. MANN:  – to the provocative question –

    MR. MITSCHEK:  To the question. 

    MR. MANN:  – because we’re – I’m being prodded on –

    MR. MITSCHEK:  To the answer. 

    MR. MANN:  Yes. 

    MR. MITSCHEK:  I mean, Nabucco will be constructed.  It can connect all European countries by transports and gas swaps.  And the next projects will be branch lines to Nabucco to connect the Western Balkans, to connect Ukraine, to connect Czech and Poland, et cetera.  And if one of the projects – ITGI or TAP would be one of these branch lines, we would be happy to connect. 

    MR. MANN:  Thanks.  Kjetil? 

    MR. TUNGLAND:  I think it would be great if – (inaudible) – were able to develop the LNG idea or CNG idea (?).  That will leave them with quite a lot of flexibility in terms of which market the gas would end up with.  LNG ships, you can change directions, but with a pipeline you cannot. 

    However, I think the combination of both building pipelines to the LNG processing facility, and then build that factory and also ships, sounds to me to be very, very costly.  So I have a feeling that a pipeline solution is the one that is going to be chosen. 

However, I have a lot of respect for my competitors, Nabucco and IGI, but I have not been able to decide with myself which of them is number two after TAP.  (Laughter.) 

    MR. MANN:  Well, we’ll just stick with TAP, but thank you.  Werner?

    MR. AULI:  I have exactly the same opinion like Reinhard mentioned – (inaudible).  I think we will see a lot of branch lines connecting Croatia to Hungary, connecting Serbia to Romania, connecting Greece, also the Nabucco pipeline system.  I think this is the – (inaudible) – bringing the gas to the market after – (inaudible) – in Turkey. 

    MR. MANN:  Very good.  Eilo? 

    MR. RUGGERI:  Well, I think I’ve already answered to this question in my previous speech.  I mean, we see a phase of the development of the Southern Corridor. 

I mean, not because we like a phase of development, because when you develop pipeline, you need supply, infrastructure and demand.  At the moment, there is supply infrastructure and demand for a medium-scale pipeline.  We hope that in the soon future we will have supply infrastructure and demand to the scale needed by a larger and larger project. 

    MR. MANN:  Okay. 

    MR. RUGGERI:  Then, I want to – So we see, of course, after a medium-scale pipeline we see a larger-scale pipeline just like would be Nabucco – (inaudible).  So there is not an alternative to us, in our view.  I mean, we are fully complemented.  It’s just a matter of time. 

But I want to make a little – a little comment to Reinhard, of course. 

    MR. MANN:  Fifteen-second comments? 

    MR. RUGGERI:  Fifteen seconds.  I mean, of course – I mean, distance is distance, but new infrastructure are more expensive than existing infrastructure.  So when you use them, I mean –

    MR. MANN:  The debate continues. 

    Let me take one last question from the floor. 

    Let me – that gentleman there.  Yes, you.  Yes.  And please identify yourself. 

    Q:  Thank you.  I’m the ambassador-at-large for energy security of Bulgaria, and also the national coordinator for Nabucco. 

    And from our perspective, I would like to put a provocative question.  Before that, I would like to remind the audience that a few days ago the European Commission and the European Parliament approved a new directive on security of supply.  And Bulgaria, for one, will have the obligation within the next three years to construct interconnectors to the four neighbors – Greece, Romania, Serbia and Turkey.  And these four interconnectors obviously make a good case for developing a regional, integrated in liquid gas supply system. 

Clearly, to us, Nabucco is the priority project, but my provocative question is the following:  To a diplomat, it seems necessary to develop a strategy.  Would the same be the kind of thinking that the corporate sector would provide?  Or they would think differently along the following lines:  a strategy that will involve three aspects, if you like, sequencing, differentiation and integration of gas projects along the Southern Corridor?  Thank you. 

    MR. MANN:  Well, let’s – anyone here volunteer to take that planning issue on? 

    The way that I understand the question is, how does a corporate approach match with the European Commission’s vision for what is being planned, in terms of security of supply? 


    MR. MITSCHEK:  Well, I mean, the vision of the European Union, as I understand the energy strategy and energy security strategy of Europe, is to link directly to Central Asian and Middle East gas sources, and to have it a biggest diversification which could be reached – sources, transportation routes, third-party access, competition and liquidity of the markets.  And I think that’s – that’s all what – again, I don’t want to bore you, but Nabucco will offer. 

And the last – very last point is that it will not decided by us.  It will not decided by our politicians.  It will finally decided by the market participant.  The market participant will chose the source, and the route and the transportation means, be it CNG, LNG, pipe, whatever, and the most attractive service package will win. 

    MR. MANN:  I think there can be no better note on which to conclude the panel by stressing the power of market forces.  And also on the question, it points up something that is very different now than 10 years ago, which is the activism of the European Commission, and EU countries more widely, in all of these issues. 

    Anyway, let us – we’re going to break now.  The next panel will convene in 10 minutes. 

    And can we have a warm thanks for our very accomplished panelists.  (Applause.)