Nabucco becomes the only potential project to supply Azerbaijani gas to Central Europe

Oil&Gas Materials 28 June 2012 21:22 (UTC +04:00)
The number of pipeline projects - the potential bidders for the supply of Azerbaijani gas to Europe - continues to decrease
Nabucco becomes the only potential project to supply Azerbaijani gas to Central Europe

Azerbaijan, Baku, June 28 / Trend /

Seymur Aliyev, Trend expert

The number of pipeline projects - the potential bidders for the supply of Azerbaijani gas to Europe - continues to decrease. The decision, announced today on the selection of the Nabucco West gas pipeline as a potential supplier of Azerbaijani gas to Central Europe, is proof of that. As previously stated, the final decision on the choice of route of delivery of Azerbaijani gas to Europe will be announced in 2013.

Thus, today, only two projects left (earlier ITGI and SEEP, proposed by BP dropped out of struggle), which compete for the opportunity to supply gas from Azerbaijan to Europe - these are Nabucco West and the Trans Adriatic Pipeline (TAP).

Of all the events taking place in recent years around the issue of transportation of Caspian gas to Europe, it's possible to make some suggestions for further selection of the route of the gas supply by Shah Deniz project partners.

In fact, participants of development of the single, albeit the largest, natural gas field in the Caspian Sea today define the future direction of export of the large Caspian gas to Europe.

Illustrative in this respect is an agreement signed this week on TANAP gas pipeline between Azerbaijan and Turkey. At the first stage this pipeline will transport about 16 billion cubic meters of gas (six billion cubic meters - for Turkey and ten billion cubic meters - for Europe), which corresponds to the volume of the second stage of Shah Deniz field development. However, later its capacity will be expanded to 31 billion cubic meters per year, almost twice as Shah Deniz 2. This amount will be provided from other fields of Azerbaijani sector of the Caspian Sea and in the future due to Turkmen gas.

Thus, the future pipeline route should have the ability to transport at least 31 billion cubic meters of gas, which corresponds to the previously stated figures of Nabucco pipeline (in its original concept). Another advantage of this pipeline is the political support of the European Union.

It's no secret that Europe needs Caspian gas, above all, to ensure energy security of its southern and eastern members who joined the Union recently. It is countries of this region that are most dependent on Russian gas and, consequently, economic and political influence of Moscow, especially since many of them had been members of the socialist bloc.

It is these countries that most suffer from the termination of deliveries of Russian gas. In this light a desire of "old" Europe to take care of new members of the Union is revealing. To achieve these goals, of course, Nabucco is best suited, rather than TAP, which involves the delivery of gas to relatively prosperous Italy and Western Europe countries.

However, Nabucco had its own drawbacks. First, it refers to the cost of the pipeline, which has not been announced yet. If previously it was predicted at 7.9 billion euros, then today we can say unequivocally that it will be higher. Secondly, it refers to the capacity of the pipeline. If there are ten billion cubic meters of gas to Europe then partners on Shah Deniz will have to pay the unfilled capacity of the pipe.

That's when the project SEEP (pipeline south-eastern Europe), proposed by BP, which is one of the largest shareholders of Shah Deniz, appeared.

With the advent of this project, as well as beginning work on the assessment of other routes Nabucco became more "compliant" and began to show more flexibility. First of all, the route of the pipeline has been significantly reduced. If previously the construction of a giant gas pipeline with length of 3900 km to the Turkish-Georgian and Turkish-Iraqi border was assumed, then the new concept - Nabucco West had been reduced to 1,300 kilometers from the Turkish-Bulgarian border to the Austrian Baumgarten. The capacity of the pipeline also has undergone significant changes. It was reduced from 31 billion cubic meters to 20 billion.

Perhaps in the future, multiple pipeline routes will be involved with an increase in the supply of Caspian gas to European markets. This, above all, is consistent with the policy of diversification, which is a key aspect of economic efficiency and energy security. However, today there is only one route on the agenda, from which the partners on Shah Deniz are going to get the most favorable conditions.

Currently the group consisting of the four shareholders of Shah Deniz, led by State Oil Company of Azerbaijan (SOCAR), having long-term interests in Central Europe holds negotiations and evaluation of the route. Availability of own gas in this market will open serious prospects in the region, especially as SOCAR, as well as other partners, intends to monitor the entire route of the gas. Today the company is a shareholder in the South Caucasus gas pipeline, intends to retain control over the TANAP and buy a stake in the project, which will be chosen to supply gas to Europe.

Nabucco is one of the Southern Gas Corridor projects, which is designed to transport gas from the Caspian region and Middle East to the European countries. The current shareholders of Nabucco project are Bulgarian Energy Holding, Romanian Transgaz, Turkish Botas, Austrian OMV, German RWE and Hungary's FGSZ.

TAP is one of the Southern Gas Corridor projects, designed to transport gas from the Caspian region via Greece and Albania and across the Adriatic Sea to southern Italy and further into Western Europe. The current shareholders of TAP project are EGL of Switzerland (42.5 percent), Norway's Statoil (42.5 percent) and E.ON Ruhrgas of Germany (15 percent). The total length of TAP is about 800 kilometers. The initial pipeline capacity of TAP will be 10 billion cubic metres per year, expandable to 20 billion cubic metres per year.

The contract to develop the offshore Shah Deniz field was signed on June 4, 1996. Participants to the agreement are: BP (operator) - 25.5 per cent, Statoil - 25.5 per cent, NICO - 10 per cent, Total - 10 per cent, LukAgip - 10 per cent, TPAO - nine per cent and SOCAR-10 percent.