Moody’s has changed the outlook on the backed foreign currency senior unsecured rating of Southern Gas Corridor CJSC (SGC) to “positive” from “stable”, and affirmed the Ba2 rating.

The $40-billion SGC consists of Trans-Anatolian Pipeline (TANAP) through Turkey, the South Caucasus pipeline extension through Georgia and the Trans-Adriatic Pipeline (TAP) to Greece, Albania and Italy.

Azerbaijan has started gas supplies to Europe through the SGC last year from the giant Shah Deniz II field. Shah Deniz, which is developed by a BP-led consortium, is estimated to contain 1.2-1.5 trillion cubic meters of gas and 240 million tonnes of condensate. The proven gas reserves in Azerbaijan are estimated at 2.6 trillion cubic meters. SGC is expected to bring around 10 billion cubic meters (bcm) per year to Europe and can be tripled depending on demand in the future. Another 6 bcm of gas going via the SGC is designated for Turkey.

The 3,500 km-long corridor, announced by Azerbaijan’s government in 2013, is set to play a key part in helping diversify Europe’s energy sources and reduce its reliance on Russian energy supplies. Almost forty percent of the EU’s natural gas imports and more than a quarter of its oil imports in the first half of 2020 came from Russia, according to Eurostat, the bloc’s statistics office. On the first day of the project on December 31, 2020, the Trans-Adriatic Pipeline, which runs via Greece and Albania to Italy pumped 10.9 million cubic meters of natural gas to Europe.

Moody’s said that SGC has received guarantees on all of its foreign currency debt.

Azerbaijan’s local and foreign currency ceilings remain at Baa3 and Ba2, respectively. The narrower-than-average two-notch gap between the local currency ceiling and the sovereign rating reflects the large footprint of the government on the economy and still weak institutions and governance, notwithstanding ample sovereign wealth assets that support the country’s external and macroeconomic stability.

The two-notch gap between the foreign currency ceiling and the local currency ceiling takes into consideration still limited confidence in the local currency and the lack of currency flexibility against the dollar, which raise the risk of transfer and convertibility restrictions. These ceilings typically act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country.