Apollo Global Management recently signed a $1 billion agreement with BP to acquire a non-controlling interest in BP’s 20% Trans Adriatic Pipeline (TAP) unit.
This investment is part of BP ‘s asset disposal strategy, which aims to raise between $2 and $3 billion by 2024.
Although BP retains control of BP Pipelines TAP, this agreement enables the company to diversify its sources of funding while maintaining its key role in a strategic asset for its gas operations in Azerbaijan.
William Lin, BP’s Executive Vice President for Gas and Low Carbon Energy, emphasized that this agreement introduces a new investor without diminishing BP’s importance in TAP.
In addition, BP and Apollo are looking forward to future collaborations in gas infrastructure and low-carbon energy assets.
Skardon Baker, Partner at Apollo, added that this investment offers its investors long-term exposure to a leading infrastructure asset, particularly attractive in the current context of European energy markets.
Role of the Trans Adriatic Pipeline (TAP)
The Trans Adriatic Pipeline (TAP) is the final link in the Southern Gas Corridor (SGC), a 3,500 km pipeline network that transports natural gas from the Shah Deniz gas field in Azerbaijan to Europe.
Spanning 880 km, the TAP connects the Greek border with Turkey to southern Italy, and currently transports around 10 billion cubic meters (Bcm) of gas per year to countries such as Italy, Greece and Bulgaria.
The pipeline plays a crucial role in diversifying Europe’s gas supply sources.
In January 2023, TAP AG announced an increase in capacity, with a further 1.2 Bcm/year available from 2026.
This expansion, which includes 1 Bcm/year for the Italian market and 0.2 Bcm/year for Albania, underlines TAP’s growing importance in European efforts to diversify their gas supplies.
At present, the 10 Bcm/year capacity is divided between Italy (8 Bcm/year), Greece (1 Bcm/year) and Bulgaria (1 Bcm/year), with a particular focus on increasing the volumes delivered to Italy.
Geopolitical implications and energy security
The agreement between BP and Apollo for TAP comes at a time of energy crisis in Europe, when the need to diversify sources of supply has become a priority.
The European Union sees TAP as a key element in reducing its dependence on Russian gas.
In 2023, Azerbaijan’s gas exports to Europe reached 11.8 Bcm, marking a 3.5% increase on the previous year.
Under a Memorandum of Understanding signed in July 2022, the EU hopes to import up to 20 Bcm/year of gas from Azerbaijan by 2027, reinforcing the strategic importance of TAP.
Fluctuating natural gas prices in Europe, which reached all-time highs in August 2022, illustrate the instability of the market.
Although prices have recently fallen, the search for reliable gas supply partners such as Azerbaijan remains crucial.
Indeed, gas prices fell to 35.77 EUR/MWh in September 2023, but market volatility continues to pose challenges for industry players.
Challenges and prospects
The potential expansion of TAP’s capacity to 20 Bcm/year could meet the growing demand for gas in Europe.
However, this expansion will require ongoing investment and coordination between existing and potential partners, including players such as Apollo.
Managing these investments will be essential to ensure the long-term viability of the pipeline.
In Albania, although gas demand is currently limited, the country is focusing on the development of gas-fired power plants, such as the 174 MW plant at Fier, developed by DEPA Commercial.
This project is part of a gas master plan aimed at achieving a total demand of 2 Bcm/year by 2040.
At the same time, Europe’s strict and evolving gas infrastructure regulations require Apollo and BP to navigate a complex framework to maximize returns while meeting the EU’s energy security requirements.
Strategic Outlook Analysis
The agreement between Apollo and BP for TAP represents a strategic investment that could strengthen Europe’s energy security while offering growth opportunities for both companies.
By retaining control over TAP, BP ensures the continuity of its operations while benefiting from Apollo’s solid financial backing.
This dynamic could also pave the way for new collaborations in the gas infrastructure sector, in response to Europe’s growing gas supply needs.
The implications of this agreement go beyond mere financial considerations.
They also touch on major geopolitical issues, notably the need for Europe to diversify its sources of gas supply.
In a context where dependence on Russian gas is being called into question, TAP is positioned as a key element in Europe’s energy strategy, contributing to the market’s resilience in the face of geopolitical fluctuations.
