Nabucco offers Caspian countries high net export price of gas: Head of Business Development at RWE (INTERVIEW)

Azerbaijan, Baku, Nov. 17 / Trend A.Badalova /

Trend 's interview with Head of Business Development at RWE Gas Midstream Jeremy Ellis.

Trend : Mr Ellis, what are the most striking benefits of Nabucco for gas producers in the Caspian Region?


Ellis: Nabucco offers the Caspian gas producers the highest net back value for their planned gas deliveries to Europe and the most secure transportation route. RWE has compared publicly available data from the other pipeline projects of South Stream, the Interconnector Greece-Italy (IGI) and the Trans-Adriatic-Pipeline (TAP). The results are showing clear evidence of the considerable benefits for Nabucco. On a distance basis the Nabucco tariff is 40% to 73% cheaper than the other projects, and the total wellhead to market costs of Nabucco are 15% to 27% below the other pipelines. Investment cost estimates show that building cost for each bcm installed capacity of South Stream is 50% above the respective cost of Nabucco.

IGI/TAP are primarily dedicated to small and already overcontracted regional markets, and they do not offer Caspian gas producers security of transit, diversification of their export base nor  won't offer any substantial transport capacity for caspian suppliers to diversify direct access to the whole European gas market.

Q: The dependency of Europe on Russian gas is a often debated, but there is also a close link of Caspian gas going to Russia. How might Nabucco change this picture?


A: Nabucco simply offers more variety, more choice, more competition, no intermediaries and security of demand and price for the countries of the Caspian Region. Europe and Turkey is striving to have more options to securing gas supplies for industry and consumers enhancing its security of supply. Nabucco plays a part in achieving this. It is a direct, dedicated route to Turkey and the European markets enhancing diversification and competition. The gas producing countries of Azerbaijan, Turkmenistan and Kazakhstan gain significant benefits through the opening of the southern corridor.


Q: Why do you view Nabucco ahead of further mooted southern corridor projects?


A: IGI and TAP are primarily dedicated to small and already overcontracted regional markets, and do little to create energy security for countries most dependent on gas imports from one source. South Stream offers no real diversification of buyers of gas for the Caspian coountries. The governments of the large gas producers in the region have a stated policy objective to diversify their export markets and Europe being the largest and most liquid gas market in the world offers enormous value and security for these countries - only Nabucco offers this. As importantly Nabucco offers the cheapest transportation route to the European markets. Why would Azerbaijan or Turkmenistan sell their gas to projects such as Southstream, IGI or TAP when they will receive a significantly lower valuefor their gas than in Nabucco? In my view they will not as they will want to have the best value and most secure commercial deal.


Q: It is said that there will be not enough gas to fill Nabucco. Where should the gas come from?

A: There never has been a supply issue with Nabucco - this is just simply wrong. From the very beginning, Nabucco has foreseen its sourcing to come from a number of suppliers. The most relevant and committed countries to supply Nabucco are countries from the Caspian region - Azerbaijan, Turkmenistan  - and the Middle East - Iraq and Egypt. Azerbaijan has publicly and repeatedly stated its willingness to supply gas to Europe and Turkey. The country has dedicated 12-16 bcm/a of the gas volumes from the development of its Shah Deniz phase II gas field in the Caspian Sea to export. Turkmenistan is seeking to diversify its gas export markets.

The President of Turkmenistan has repeatedly signalled his willingness to supply some 10 bcm/a for onward delivery to Europe. Iraq has significant gas reserves, which alone could fill the entire capacity of the Nabucco pipeline, and these are now being actively developed. In May 2009, the Nabucco consortium partners OMV and MOL acquired a 10% share each in Crescent Petroleum and DanaGas' Khor Mor and Chemchemal gas fields in Northern Iraq.

Public statements by the companies indicate that there is a potential gas production of upto 30 bcm/a from these fields from around 2015. There is more than enough gas from these three countries alone to fill Nabucco and by 2015/16.

Q: When do you think we will see first supply contracts?

A: RWE is expecting to see first gas supply contracts with the Caspian region in the first half of 2010.


Q: We are now in times of a financial and economic crisis? Is there enough money to build this pipeline? Where does it come from?

A: As with gas supplies, Nabucco has no problems with finding finance. Nabucco is a privately financed project, and, by definition, the investment risk is taken by the shareholders of Nabucco. Even in the aftermath of the credit crunch, there is a market for long-term investments in energy infrastructure with stable and reliable return projections. Consequently, investors are already showing strong support for the project, among others the European Investment Bank, the European Bank for Reconstruction and Development, other multi-lateral organisations and export credit agencies. Large infrastructure investments such as this project also create significant tax income, jobs and industrial development opportunities in all the countries along the Nabucco route, making a major contribution to public finances and the economy in general.

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