A lot of ink has been spilled as of late in praise or against AGRI, the Azerbaijan-Georgia-Romania Interconnector. The project, little known outside its region, consists of building the first LNG facilities in the Black Sea in the Georgian and Romanian ports of Poti and Midia, respectively. Azeri gas would be transported by pipeline to Poti, where it would be liquefied and then shipped to Midia for regasification and further injection into the Romanian national gas grid, from where, again it would be exported to Hungary and possibly other markets.
The project´s feasibility study was commissioned in 2012 and finally presented during a Ministerial Meeting on 24 June 2015 in Bucharest when the above-mentioned details emerged, along with details about the costs. These would vary from 2 to 5 bn euro, depending on capacity. The capacity options considered viable are 5 and 8 bcm respectively, possibly with the option of increasing capacity in time, if necessary. Serbia already announced its intention to join the project and Bulgaria could follow, so final volumes will have to consider level of demand apart from the costs. No O&G majors however, have shown interest in the project so far, with the stocks of the Bucharest-based company being split equally between Romania´s Romgaz, Georgia´s GEOC, Azerbaijan´s SOCAR, and Hungary´s MVM.
Like most O&G projects before it, AGRI has drawn both strong support and utter criticism, with reason on both sides.
In the first corner, the AGRI-hopefuls. Their main argument is that AGRI is a strategic project, which, as part of the Southern Gas Corridor could offer not only diversification from Russian supply, but also from the evermore crowded Turkish gas route. Accommodation could be made, in time, for Turkmen and Iranian gas to flow onto European markets, thus increasing the project´s attractiveness. The countries on its path would stand to gain significantly from the investment also in terms of job creation and increased trade flows. Georgia wold see its role as a strategic gas pathway strengthened. Romania would finally come onto the regional energy map with a project of its own after its disappointment with Nabucco. Plus, AGRI could contribute to bringing Black Sea offshore gas to regional markets if it acts as incentive for building infrastructure that connects the Black Sea to the national grid.
In the second corner, however, the AGRI-sceptics. There is not sufficient Azeri supply, on the medium-term, for both AGRI and the TANAP-TAP route, whilst Turkmen and Iranian gas will take a long time to flow towards European markets, if ever they will. LNG construction costs at current levels of technological development surpass those of pipelines. This means both that major foreign investors will be reluctant to engage (especially true during the current oil price slump), and that any LNG to be supplied will be uncompetitive in terms of price, especially compared to Russian piped gas.
Furthermore, Turkey has no appetite to open up its Bosporus Straits for tanker traffic, especially if this will bite out of its transit share of Caspian gas. A closed Black Sea keeps AGRI dependent upon regional demand, thus less appealing. If Black Sea LNG carriers would have access to the global LNG market and vice-versa, the project would make more sense for investors, especially at this time when the LNG sector is on the up. Last but not least, recent developments have also shown that the main value of AGRI, its strategic path, could be endangered by further encroachment by Russian troops on Georgian territory, posing threat to gas pipeline infrastructure.
If Nabucco has taught us anything it is that pragmatism and financial calculations take precedence in such decisions. Until AGRI-hopefuls come up with a secure source of gas supply able to trigger the support of major investors, AGRI will stay in limbo, as others before it. As long as it does not cause countries to stall other diversification projects, this is not a menace. It could even serve governments as a negotiating tool for cheaper Russian gas, if Moscow is convinced of the project´s viability. Or it can cause Turkey to offer cheaper transit through its territory. These arguments could become stronger if AGRI will benefit from Brussels´ financial assistance; but that´s a big if, and should it fail, it will render AGRI in limbo for a long time to come. Its next chance will depend upon successful implementation of the agreement recently reached with Iran, again to be clearer in the fall after the US Congress´ vote, and still a long shot for AGRI.
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