Two EU members, Romania and Hungary, have joined forces with Azerbaijan and Georgia around a project to ship liquefied Azeri gas to their region. Supporters argue that the project could be implemented quickly, but critics point to high costs and vulnerability.

A new company has been created with the initial task of organising a feasibility study and attracting funds.

An 'AGRI summit' took place later on in the presence of Azerbaijan President Ilham Aliyev, Georgia's Mikhail Saakashvili, Romania's Traian Basescu and Hungarian Prime Minister Viktor Orban.

On Monday (20 September) Hungary announced it could become a shareholder in AGRI. In that case, each country would hold a 25% stake in the project.

According to reports, AGRI will be designed to transport Azerbaijani gas by pipeline to a Black Sea port in Georgia for liquefaction. Further transport will take place via tanker to the Romanian Black Sea port of Constanta. From there, the gas will be pumped through Romania's pipeline system to Hungary and on to the rest of the European market.

The project envisages the construction of a liquefaction plant for LNG exports at the Azerbaijan-owned oil export terminal of Kulevi in Georgia, as well as the construction of a terminal for importing liquefied gas to a re-gasification plant in Romania.

'Making history'

"We're making history," Aliyev was quoted as saying at the summit. The host of the AGRI summit said that diversification was an important element in energy security and that Azerbaijan today had seven oil and gas pipelines running to different destinations.

Azerbaijan will produce 28bn cubic metres of gas per year when the second phase of the Shah Deniz field comes on stream, the president said, while domestic demand is 10-11bn cubic metres. The remaining gas will be exported, Aliev explained.

He said that the next stages of AGRI – completing the feasibility study and raising cash – would be important and urged international financial institutions to get involved in the project.

Basescu said that together with Hungary, his country would make the necessary moves for the feasibility study to be co-financed by the European Union as part of the Trans-European Energy Networks Programme. At present, a survey on the LNG terminal in Constanta, Romania's Black Sea port,  is being finalised. Its conclusions will provide the starting point for the survey on the AGRI project, Basescu added.

The project, which in various guises could handle one, five or eight billion cubic metres a year, is seen as a competitor to Nabucco and other projects in the southern gas corridor, as in the same way, it taps into the gas resources of Azerbaijan.

Pros and cons

According to analysts Ariel Cohen and Gulmira Rzayeva, AGRI's main selling point is the speed at which it can be implemented, allowing the swift conversion of ideas into reality. They claim that AGRI's realisation appears to be the fastest among the projects of the southern corridor, which includes other projects such as Nabucco, the Trans-Adriatic Pipeline (TAP) and the Turkey-Greece-Italy Interconnector (ITGI).

According to Stratfor, an information agency which is close to the US intelligence community, AGRI is a very expensive project, the cost of which is "unmanageable" for the four consortium countries.

Eugene Chausovsky, an analyst at Statfor, says that the Azerbaijan-Georgia pipeline would be "at spitting distance" from breakaway Abkhazia, which is practically under Russian control. Russian troops are based there, and Russia could cause damage to the pipeline if it wanted to, Chausofski said.

Background

Up to now, two competing planned gas pipelines, Nabucco and South Stream, have had similar timeframes for beginning and completing construction. They also attract most media attention.

However, there are other pipeline projects, which although with smaller capacities, could see the light of day earlier, as they are seen as more commercially viable.

German gas giant E.On Ruhrgas joined Norway's Statoil and EGL of Switzerland in what they describe as a strategic move to realise the Trans-Adriatic Pipeline Project (TAP). The TAP pipeline, 520km in length, will begin in the Greek city of Thessaloniki and cross Albania before running across the bottom of the Adriatic Sea for 115km to Brindisi in Italy.

The TAP pipeline's planned capacity is 10 billion cubic metres (bcm) and it should become operational by 2016-2017.

Another pipeline project, ITGI (Interconnection Turkey-Greece-Italy) project, is sponsored by Italian energy company Edison (EurActiv 27/04/10). Its officials said it could constitute the "first phase" of the Nabucco project.