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Shah Deniz deal levels playing field between Nabucco, TAP

Oil&Gas Materials 25 January 2013 10:16
Nabucco shareholders have signed a Co-operation Agreement and an Equity Option & Funding Agreement with Azerbaijan’s Shah Deniz Phase 2 project, which levels the playing field once again between Nabucco and the Trans-Adriatic Pipeline (TAP), competing to carry Caspian gas to Europe.
Shah Deniz deal levels playing field between Nabucco, TAP

Nabucco shareholders have signed a Co-operation Agreement and an Equity Option & Funding Agreement with Azerbaijan's Shah Deniz Phase 2 project, which levels the playing field once again between Nabucco and the Trans-Adriatic Pipeline (TAP), competing to carry Caspian gas to Europe, New Europe reported.

"The agreement signed between the Nabucco shareholders and the Shah Deniz partners is similar to an earlier agreement signed between Shah Deniz partners and the TAP shareholders," Julian Lee, Senior Energy Analyst at the Centre for Global Energy Studies (CGES) told New Europe on 22 January. "The agreement with Nabucco levels the playing field once again between the two lines competing to carry Azerbaijan's gas from Turkey's western border into Europe. Without the agreement, Nabucco would have been at a huge disadvantage to TAP; the agreement has allowed it to catch up," Lee added.

The Nabucco agreements signed on 18 January envisage close co-operation to align the time schedule and project development of Nabucco West and Shah Deniz Stage 2 projects, joint funding of the costs of Nabucco West's further development up to Shah Deniz's European pipeline selection decision, and granting to Azeri state oil and gas company SOCAR, British Petroleum, Norway's Statoil and France's Total options to take up to a total of 50% equity in the project and to participate in a new NIC shareholder structure, following a positive selection of the Nabucco West pipeline by the Shah Deniz Consortium, Nabucco said in a press release.

In August 2012, TAP and the partners on the Shah Deniz field development, signed an agreement to secure funding for the TAP project. The agreement also includes an option for the Shah Deniz shareholders to take up to 50% equity in TAP.

But this January, Nabucco caught up with its competitor. The Nabucco shareholders called the agreements a "milestone" in the development of the project. "The shareholders welcome this agreement, and fully support the ongoing co-operation with Shah Deniz II. Nabucco is a multi-sourcing and scalable project further contributing to supply and transport diversification integrating the southern corridor into the European gas grid. Upstream and midstream projects are both integral parts of the value chain for Azeri gas and we are confident that Nabucco provides a win-win scenario for all parties involved," Nabucco Steering Committee Chairman Hans-Peter Floren said.

Nabucco Gas Pipeline International CEO Reinhard Mitschek hailed the conclusion of the agreements. "Nabucco has been in close negotiations with the Shah Deniz partners since the designation in June 2012 of Nabucco West as the Central European delivery option. Today's important achievement is a clear indicator of the potential success of this process and of the commerciality and competitiveness of Nabucco West in offering convincing business opportunities in the promising market area of South East Europe and Central Europe," Mitschek said.

Nabucco Gas Pipeline International CFO Frank Siebert called these agreements an essential step forward. "The signing of the equity option and funding agreement, in particular, is a mark of the producers' confidence in Nabucco West. This goes a long way towards mitigating risk for our investors and allows us to move forward on a sound and stable financial footing. We look forward to working with the Shah Deniz partners and remain confident that Nabucco West can provide the best option for all parties," Siebert said.

Nabucco West plans to take Caspian region gas from the Turkish-Bulgarian border via Bulgaria, Romania and Hungary to the Central European Gas Hub at Baumgarten. Nabucco shareholders are Austria's OMV, Hungary's FGSZ, Romania's Transgaz, Bulgarian Energy Holding, Turkey's Botas and Germany's RWE. It is the shareholders who are responsible for the negotiation of gas contracts.

TAP project is 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. TAP's initial pipeline capacity will be 10 billion cubic metres per year, but it can expand to 20 billion cubic metres per year. TAP's shareholders are Swiss AXPO, Norway's Statoil and Germany's E.ON Ruhrgas.

The Southern Gas Corridor is one of the EU's priority energy projects aimed at diversifying the routes and sources of energy supply, thereby reducing the 27-country's bloc reliance on Russia.

The consortium of Azerbaijani Shah Deniz gas field development plans to make its selection on the gas supply route to European markets between Nabucco West and TAP in 2013.

Asked if the 10 billion cubic metres from Shah Deniz would be enough to fill Nabucco, a senior consultant of the project told New Europe on 21 January that "one of Nabucco's great advantages making it an extremely competitive project is that it is scalable between 10 and 23 billion cubic metres per year to adapt to market offer and demand".

By Kostis Geropoulos, Energy & Russian Affairs Editor

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