Gas supply contracts to solve Nabucco financing (VIDEO)
Trend commentator Aygun Badalova
The consortium of Nabucco gas pipeline project, which is the European Union's priority project, is evaluating the cost of the pipeline. The initial estimated cost of the pipeline is 7.9 billion euro.
According to the managing director of the project Reinchard Mitschek, the cost of the pipeline can be revised upwards. The main reason for that is the increased length of the pipeline. To date, the pipeline's estimated length has stood at 3,300 km. But international tension surrounding Iran's nuclear program which was the reason for Nabucco consortium to decide to divert a planned stretch of the pipeline from Iran to Iraq, will add further 550 kilometres to the pipeline's length.
The coast of the pipeline can also increase due to soaring commodity prices and may stand at 14 billion euro, BP assessment shows. Nevertheless the consortium of the project considers all this figures as speculations and inaccurate.
Nabucco project is part of the South Gas Corridor conception and designed to transport gas from the Caspian region and Middle East to Europe. The project fully meets the European Union's objective to diversify the routes and the sources of energy supply and thereby to increase the energy security of the region. That is why the project is very important for Europe, which pays special attention to its realization.
The European Commission has already said that even in case of a rise in the cost of the Nabucco project, the EU will continue to support it, because its implementation will provide it with a direct access to the gas in the Caspian region.
I think the possible increase in the cost of the project will not affect the interest in it. However, there are many important issues which need to be solved to provide the financing of the project.
The European Bank for Reconstruction and Development, the European Investment Bank and the IFC signed last year, in September, a mandate letter with the shareholders of Nabucco project and it marks the commencement of the project evaluation. This is a necessary step towards a potential financing package of up to EUR 4 billion. The project evaluation will include a thorough assessment of commercial, social and environmental aspects.
Involvement of three IFIs demonstrates global and European support for the Nabucco project. Commitments from potential lenders are expected to be sought in 2011.
But first of all Nabucco project shareholders should succeed in the signing gas supply contracts with the potential suppliers, such as Azerbaijan, Iraq and then Turkmenistan.
Availability of contracts with the suppliers will serve as a guarantee for Nabucco to be filled and will be significant stimulus for the potential lenders. Moreover, signing the first contracts between shareholders and suppliers will be followed by open season and that will provide an opportunity to make a final investment decision on the project, which is expected to come out in 2011. Thus, this year will be really important and decisive for Nabucco project.