GOBIERNO DEL ESTADO DE AGUASCALIENTES

All pipelines, which transport Caspian gas to Europe, need to pass through Turkish territory. With this in mind, Turkey aims to offer a safe, consistent and reliable transit system. TANAP is perceived as the backbone of the Southern Gas Corridor, which, in the medium term, is expected to transport Shah Deniz II gas to Europe (Rzayeva, 2014). A concrete step was made on June 26, 2012, in Istanbul, Turkey, as the Azerbaijani and Turkish governments signed the "Intergovernmental Agreement" and the "Host Government Agreement" to implement the TANAP, which was proposed to create a stable and secure route for gas transport, across Turkey, to the border with Greece. The ground-breaking ceremony of the TANAP project was held on March 17, 2015, in Kars, Turkey. The TANAP project is part of a program of gas development in Azerbaijan and gas transmission from Azerbaijan through Georgia, Turkey, Greece and Albania to Italy. Turkey is the host country of this project, which is the first realisation of the Southern Gas Corridor (Nyman, et al., 2016).

The term Southern Gas Corridor is used to describe infrastructure projects aimed at improving the security and diversity of the energy supply of the EU, by bringing natural gas from the Caspian region to Europe (Nyman, et al., 2016). TANAP Dogalgaz

Iletim A.S. (TANAP Natural Gas Pipeline Company), is a company established under Turkish company law, to implement the TANAP project and own and operate the pipeline system upon project completion (Nyman, et al., 2016). The TANAP project can be propounded as a rather plausible alternative, in economic terms, to the partially eliminated EU flagship project Nabucco. TANAP is managed and operated by a consortium of energy companies, along with SOCAR (Azerbaijani State Oil Company), which holds a 58% share in the principal company. The other shareholders of the TANAP project are: BOTAS with 30% and BP P.L.C. with 12% (MFA, 2017). There are two alternatives to be considered with this project: The possibility of upgrading the current BOTAS pipeline network and/or construction of a new standalone pipeline across Turkey, to facilitate shipping of Azerbaijan's natural gas from the Shah Deniz II field.

The Shah Deniz gas field is operated by the BP P.L.C., which has a share of 28.8%. TP has the second largest share in Shah Deniz Field with 19%. The other co-ventures and their shares are as follows: SOCAR (Azerbaijan) 16.7%, Petronas (Malaysia) 15.5%, Lukoil (Russia) 10% and NICO (Iran) 10% (MFA, 2017). The first substantial amount of gas delivered via a route from Azerbaijan to Eskisehir, Turkey and from there to Europe through TANAP, is expected in June 2018 – with 2 bcm, initially. Saltuk Düzyol, the General Director of TANAP in Turkey, has claimed that this volume will reach 6 bcm over three years. The sale of gas in Turkey will be carried out by BOTAS.

The upstream project Shah Deniz Phase II is expected to provide 16 bcm per annum gas to millions of consumers in Georgia, Turkey, Greece, Bulgaria, and Italy. 6 bcm per annum gas will be sold to Turkey and the remaining 10 bcm per annum gas will be supplied to Europe. The initial capacity of 16 bcm of gas per annum (first stage), is expected to expand to 24 bcm per annum by 2023 (second stage) and to 31 bcm per annum by 2026 (third stage). This will take place upon construction of the required additional compressor stations (TANAP Dogalgaz Iletim A.S., 2016). The estimated initial investment cost of the 1,850 kilometres-long-pipeline will be $11.2 billion (Abbasova, 2016).

TANAP will start from the Turkish border with Georgia, beginning in the Turkish village of Türkgözü, in the Posof district of Ardahan. It will run through 20 provinces (from east to west): Kars, Erzurum, Erzincan, Bayburt, Gümüshane, Giresun, Sivas, Yozgat, Kirsehir, Kirikkale, Ankara, Eskisehir, Bilecik, Kütahya, Bursa, Balikesir, Canakkale, Tekirdag, Edirne and will end at the Greek border in the Ipsala district of

Edirne. From this point, the Trans Adriatic Pipeline will connect the natural gas to the European gas markets (Nyman, et al., 2016). The pipeline will be able to transport approximately 73% of annual Turkish natural gas consumption. This amount of gas exceeds the annual imports from Russia and will affect Russia's future market shares, not only in Turkey, but also in its traditional European market (Rzayeva 2014). The pipeline's capacity will be 30 bcm per year. Azerbaijan expects to double its current gas production to 50-65 bcm annually, between 2025 and 2030 (Rzayeva, 2014).

The political advantages of TANAP for Turkey are certainly quite important. The project may contribute significantly to growing political leverage of Turkey in the broader context of Europe, the Black Sea, the Caspian Sea, the Middle East and Mediterranean regions, by enhancing the country's strategic position as a reliable partner and an important transit country (Rzayeva, 2014). Turkey will thus realise its long-term strategic goal, to become a major energy hub between Eastern suppliers, rich with hydrocarbon sources and European markets, in need of energy imports. Moreover, the Turkish and Azerbaijani governments have decided that the TANAP project will be managed under the Turkish Law. This ordinance gives Turkey the additional benefit of not only controlling the legal processes, but also managing financial issues. Thereby, all the revenues of the TANAP project will be regulated by Turkish law, including various taxes, duties and other payments (Rzayeva, 2014). There are, however, different arguments as to whether the operation of TANAP will allow Turkey to diversify away from Russian gas and import cheaper gas from Azerbaijan. On the one side, TANAP is very much welcomed and supported by the EU. Through the TANAP project, Turkey gains not only economic gains from transit fees, but also political leverage over its partners in Brussels and Baku. On the other side, some Turkish observers argue that due to high transmission tariffs, the gas through TANAP will be more expensive than Russian gas. Moreover, it remains unclear whether there will be sufficient gas for both the TANAP and, eventually, for the planned Southern Gas Corridor from Shah Deniz field.

In the light of these uncertainties, Azerbaijan has taken the initiative to begin negotiations with Turkmenistan, to allow Turkmenistan to supply gas to TANAP, in the second phase. According to the estimations, between 10 bcm and 30 bcm of Turkmen gas could reach Azerbaijan annually, through the Trans-Caspian Pipeline, if Turkmenistan agrees to a long-term agreement with European customers. Up until now,

Turkmenistan has preferred to sell its gas at its border, and, so far, not ventured downstream (Shaban, 2016).

More crucially, there are still disputes about the legal status of the Caspian Sea, which must be determined before the construction of any pipeline infrastructure. For much of the twentieth century, the Caspian Sea was the exclusive domain of Iran and the Union of Soviet Socialist Republics, with the latter enjoying naval dominance (Janusz, 2005). With the collapse of the Soviet Union, the geopolitical situation in the region changed significantly. Instead of two, there are now five littoral states, which share the natural heritage of the Caspian Sea: Kazakhstan (30.8%), Turkmenistan (16.8%), Iran (18.7%), Azerbaijan (15.2%) and Russia (18.5%). For the last 25 years, Russia has simply blocked negotiations to define the legal status of the Caspian and, in one sense, hampered any pipeline developments between Europe and the littoral states of the Caspian.

The Caspian Sea is rich with vast amounts of oil and gas reserves, along with important transportation routes connecting Europe and Central Asia. In this sense, the Caspian has the potential to supply the world energy market. Nevertheless, the dispute over the legal regime of the Caspian Sea, raises many problems in the fields of international law (law of treaties, the law of the sea, environmental law) (Janusz, 2005). The legal status of the Caspian Sea largely depends on whether the Caspian Sea is a ‘lake' or ‘sea' regarding both geography and law (Siradze and Suleimanov 2013). If the Caspian is classified as a ‘sea,' according to the United Nations Convention on the Law of the Sea provisions, each littoral state would have a ‘territorial sea', with a breadth not exceeding twelve miles, an exclusive economic zone not exceeding 200 miles and a continental shelf (Janusz, 2005). If the Caspian is considered as a ‘lake,' then the seabed will be divided evenly between all littoral states. Under this scenario, the crucial issue being that all countries would have to agree before a pipeline could be constructed across the Caspian (Coffey, 2015). Recognising the Caspian as an (international) lake also requires the use of the waters to be regulated by the international agreements of border states, which determine the lines of state borders, rights of navigation and terms of use of waters for non-navigational purposes (Janusz, 2005). Each littoral state has different claims regarding the demarcation of the Caspian seabed. Iran, with the shortest Caspian coastline, considers the Caspian to be a lake and demands to divide up the Caspian's resources equally five ways (Fitzpatrick, 2014). The three former Soviet states –Azerbaijan, Turkmenistan, and Kazakhstan- consider the Caspian to be a sea and,

therefore, claim to divide the Caspian seabed along existing national borders (Coffey, 2015). On the other hand, Russia's position on the Caspian seabed ownership, is more complicated. Russia wants to remain strong in the area, in order to prevent other members from superseding it. Different ministries are pursuing different policies concerning the Caspian dispute. The Russian Ministry of Foreign Affairs considers Caspian to be a lake, believing that it will preserve Russia's dominant geopolitical role in the region. On the other hand, the fuel and power ministries and the oil and gas lobby consider the Caspian to be a sea, asserting that would create more opportunities for Russian companies to compete for more lucrative contracts (Coffey, 2015).

Through its cooperation and close diplomatic relations with Azerbaijan, Turkey aims to become a critical gateway for energy corridors between east and west, by offering diversification of routes and supplies to Europe, which will contribute to both the EU and Turkey’s energy security policies. In order to accomplish its target, the conflict over the disputed offshore energy fields in the Caspian Sea must be resolved, in order to achieve an unhindered flow of gas and oil.

3.2.3.3. Trans Adriatic Pipeline

The Trans Adriatic Pipeline is the European leg of the Southern Gas Corridor, which aims to connect the EU market to new gas sources. The pipeline is designed to bring gas from Caspian region and potentially the Middle East, to the EU, thereby contributing to the further diversification of the European energy supply sources and routes. On June 2013, the Shah Deniz Consortium announced the implementation of the Trans Adriatic Pipeline, instead of the Nabucco West project. With a capacity of 10 bcm of gas per annum, the pipeline will transport gas from the Shah Deniz Phase II field in Azerbaijan to the EU market, as of 2020. Connecting with the TANAP at the Greek- Turkish border, the Trans Adriatic Pipeline will cross Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy, to connect with the Italian natural gas network. The builder and operator of the Trans Adriatic Pipeline is a joint venture consortium, including several energy companies: BP P.L.C. (United Kingdom, 20%), SOCAR (Azerbaijan, 20%), Snam (Italy, 20%), Fluxys (Belgium, 19%), Enagás (Spain, 16%) and Axpo (Switzerland, 5%) (Trans Adriatic Pipeline, 2016).