Southern Gas Corridor A Major Project for EU Energy Security

14 June 2018
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European Union (EU) is one of the largest energy consumers in the world, making energy security a topic of a national interest. Since EU cannot produce sufficient energy to cover the domestic demand, it imports almost 53% of total oil and gas consumptions. However, it has a higher dependency on natural gas rather than oil. This is due to the significant decline in indigenous gas production and EU climate change policy, which was envisioned to decrease Green House Gas Emissions by 40% up until 2030.[1]


Natural gas consumption in EU has dramatically increased in last two decades. Especially South Eastern European (SEE) countries is predicted to play significant role in future increment, as natural gas penetration rate is small in these countries in comparision to the rest of Europe. Furthermore, some countries even can not consume natural gas due to the lack of infrastructure. So, natural gas consumption is expected to increase in those countries after the implementation of planned pilepline projects, namely Ionic Adriatic Pipeline and Greece-Bulgaria-Romania interconnector.


Although natural gas consumption is on increasing trend in EU, production on contrary is decreasing, making EU more reliant on the imported gas. Especially, Netherlands and United Kingdom-two major producers of the EU, have been experiencing a sharp decline since early 2000s. Thus, the import dependency of EU is expected to increase to 84% by 2030, which was just 67% in 2016.[2]


Southern Gas Corridor (SGC) project was envisioned to transport natural gas from the Caspian, the Middle East and Central Asia regions to the European market. The project has strategic importance for the EU, which was included to the list of Project of Common Interest (PCI) on October 15, 2013.[3]  Therefore, EU committed to reinforce energy cooperation with the Caspian region in order to achieve the diversification of sources and suppliers.


Although the SGC will end in Italy, it will be able to reach almost every part of the Europe by interconnectors, given the fact that TAP will connect to the Italian natural gas grid Snam Rete Gas,[4] from there it will be able to reach almost all European destinations. In this context, by using swaps and reverse flows, SGC can reach to the Central European largest energy hub of Baumgarten in Austuria[5] from Italy by Trans Austuria Gas pipeline.[6] Furthermore, TAP can transport natural gas to Germany and France through Switzerland by using reverse flow via the Transitgas pipeline, which will be commissioned by 2018.[7] In addition, the SGC will carry gas to the UK-one of the biggest natural gas trading hubs of Europe. In this context, Italian natural gas operator Snam Rete Gas and the Belgium operator Fluxys made an agreement to promote physical reverse capabilities between Italy and UK by integrating the gas markets of Italy, Switzerland, Germany, the Netherlands and Belgium.[8] Thus, the SGC will reach to northen European markets where demand is estimated to increase.


SGC will supply gas to Bulgaria and Romania through Greece-Bulgaria-Romania interconnector. Given the fact that there is an existing pipeline between Romania and Hungary, Hungary can also import natural gas through the SGC. Moreover, the Caspian gas also will flow to the Balkans through the Ionic Adriatic Pipeline. As is seen, SGC will be able to transport natural gas to almost every part of the Europe by interconnectors and the reverse flows.


Taking into account that there is a lack of domestic natural gas market in several SEE countries like Albania, Kosovo and Montenegro,[9] SGC can faciliate the development of the natural gas markets of these countries by constructing networks, and interconnectors among themselves.


Given the fact that some European countries such as Switzerland, Slovenia, Slovakia, Czech Republic, Macedonia, Kosovo, Serbia and Hungary are landlocked[10] and therefore cannot buy LNG to ensure their supply diversification, they can only buy natural gas through pipelines. In this case, by bringing new volumes of natural gas from new sources, SGC will be able to contribute to the supply security of these countries.


One of the significant prioritets of the EU energy strategy is providing supply and route diversification in order to lessen its vulnerability against supply distruptions. Taking into consideration that 5 EU member countries are entirely reliant on sole supplier and the dependency is almost 80% to 100% in SEE countries, these countries should be ready for the possibility of future supply interruptions.  However, in the event of future disruptions, SGC can provide natural gas to these countries by activating its reverse flow capacity.


One of the significant objectives of EU energy supply security is providing natural gas at affordable prices. Looking at the cost of the natural gas supplying to the European countries, Lochner and Bothe claims that the cheapest gas supply route to Europe are from Azerbaijan, Algeria, Norway, Oman, Russia and Iran respectively.[11] According to OME, the cheapest natural gas comes to the EU from Algeria, followed by Iraq, Azerbaijan, Iran and Egypt by pipeline through Turkey.[12] Moreover, according to the calculations of Mavrakis the cheapest natural gas through SGC are from Iraq, Azerbaijan, Iran, and Turkmenistan respectively.[13] As is seen, natural gas prices from the Caspian region are the cheapest among the other alternatives. Thus, the SGC will allow EU to access the cheaper natural gas resources.


As Southern Gas Corridor will carry additional and new volumes of natural gas to the European market; it will create a competition environment in the market which will reduce the import prices of the European countries.  The amount of price reduction will reliant on the volume of natural gas transported to the Europe through the SGC. According to the calculations of Hasanov, an initial supply of 10 bcm per year will cause $2.4 to $4.81 reduction in natural gas import prices of EU per thousand cubic meters. When the volume reaches to 25 bcm per year, price reduction will increase to $6 to $12 per thousand cubic meters. That means the European countries can save $0.78 to 1.85 billion annually on natural gas import bills by 2020 and $1.34 to $3.24 billion by 2023 and $1.97 to $4.99 billion by 2026 in real terms.[14]


The EU aims to reduce its GHG emissions by 40% till 2030 in the framework of EU Climate Change programme. In this context, it aims to substitute carbon intensive fossil fuels, particularly coal with the environmentally friendly natural gas. However, some countries can not substitute their coal consumption with natural gas due to their high natural gas import prices. For example, coal comprises almost 37% of the Bulgaria’s total primary energy consumption, followed to 22% oil and 13% natural gas. In addition, while coal accounts for around 44% of the total primary energy consumption of Czech Republic, the shares of oil and natural gas are 25% and 18% respectively.[15] Given the fact that SGC will ensure a competition in these countries and therefore pave the way for the reduction in natural gas import prices, they will be able to substitute their coal consumption with natural gas.  


By supplying new volumes of energy from alternative sources and routes, SGC will significantly contribute to the energy supply security of the European countries. In addition, openning up the fourth corridor, SGC will provide supply diversification in Europe, and lessen its dependency on single supplier, which will protect the Europe against to the future supply disruptions.










[1]European Commission, 2030 Energy Startegy,  (12.06.2018). 

[3]European Commission, Commission Delegated Regulation (EU) No 139/2013, Brussels, 14.10.2013, p.18.

[4] Amouk Honore, “The Italian Gas Market: Challenges and Opportunities”, The Oxford Institute for Energy Studies, June 2013, p.49.

[5] Patrick Heather, “Continental European Gas Hubs: Are They Fit For Purpose?”, The Oxford Institute For Energy Studies, June 2012, p.14.

[6] TAG Pipeline System,  (12.06.2018)

[7] Snam, The Transit Gas-TENP Will Be Bidirectional As of The Summer of 2018, 30.01.2015 (12.06.2018)

[9] European Commission, SWD(2014) 323 final, Comission Staff Working Document, 16.10.2014, p.2.

[10] Maps of World, Landlocked Coundtries of Europe, (12.06.2018).

[11] Stefan Lochner, David Bothe, “The Development of Natural Gas Supply Costs to Europe, the United States and Japan in a Globalizing Gas Market- Model-based Analysis Until 2030”, Energy Policy 37, 2009, pp. 1518-1528

[12] Observatoire Mediterraneen de l’Energy (OME), Assessment of Internal and External Gas Supply Options for the EU, Evaluation of the Supply Cost of new Gas Supply Projects to the EU and an Investigation of Related Financial Requirements and Tools, 2001, p.7.

[13] Dimitrios Mavrakis, Georgios Thomaidis, and Ioannis Ntroukas, “An Assessment of Natural Gas Supply Potential of the South Energy Corridor from the Caspian Region to the EU”, Energy Policy 34, 2006 p. 1671-1680.

[14]Mubariz Hasanov, “Economic Benefits of the Southern Gas Corridor”, Caspian Strategy Institute, January 2014, p.6.

[15] BP Statistical Review of World Energy 2015, p.41.


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