Struggle between TAP and Nabucco West gains momentum

Oil&Gas Materials 24 May 2013 19:56 (UTC +04:00)

Azerbaijan, Baku, May 24 / Trend /

Trend commentator Aygun Badalova

The struggle between the two pipeline projects for the transportation of Azerbaijani gas to Europe (Nabucco West and TAP (Trans Adriatic pipeline)) is gaining momentum in anticipation of the final decision of which route will be followed. The consortium to develop the Azerbaijani Shah Deniz field will make a difficult choice between these projects in June. With little time remaining, the pipeline consortia are trying to present the best aspects of their projects.

Considering the features, specifications as well as markets for the projects, we can say that the chances of seeing either Nabucco West and TAP are almost equal.

The main selection criterion set by the Shah-Deniz Consortium are transit tariffs and gas prices in the project-oriented markets.

One of the differences between the two projects is the length of the proposed pipelines. The Nabucco West pipeline will run from Turkey to Austria via Romania, Bulgaria and Hungary. The total length of the pipeline will be 1,329 kilometers. The length of the Trans Adriatic Pipeline is much shorter - about 870 kilometers, and the transit countries of the project are Greece (550 km), Albania (205 kilometers) and Italy (five kilometers). 110 kilometers of the pipeline will be laid on the bottom of the Adriatic Sea.

Thus, a shorter route means lower transit fees compared to the rates for the Nabucco West transit pipeline. In this regard, the TAP project looks more attractive.

However, when considering the cost of gas, Nabucco West may have some advantage. The main consumers of Azerbaijani gas, if it goes along this route, will be the countries of Central and South-Eastern Europe that have limited sources of supply and in dire need of diversification. Thus, these countries may offer producers a better price for gas.

Another criterion for the choice of European gas supply route is the possibility of expanding the capacity of the pipeline given discovery of new additional sources of gas. Both projects meet this criterion. The initial capacity of Nabucco West as well as TAP is 10 billion cubic meters with the possibility of increasing it to 23 billion cubic meters for the first and up to 20 billion cubic meters for the second.

An important point is political support for projects demonstrated by participating countries. And in this matter, both projects are equal. The Intergovernmental Agreement on Nabucco signed in July 2009 and successfully inherited by the new shortened concept of the project, to date, is the main legal and political basis for the Nabucco West.

For a long time, the existence of this agreement with Nabucco West was seen as its advantage over the TAP project, which did not have such a document. However, in February of this year, TAP evens the positions. The long-awaited support to TAP by transit countries of the project, Albania, Italy and Greece, was confirmed by the intergovernmental agreement.

In addition, this week the representatives of the governments of Montenegro, Albania, Bosnia and Herzegovina and Croatia signed a memorandum of understanding, support and cooperation for the construction of two pipelines - TAP and the Ionian-Adriatic, which is expected to be laid in the Western Balkans. The signatories to the memorandum pledged to promote development, financing and implementation of these two projects.

Elaborating on the project documents, the availability of the TAP joint agreements with partners to develop Shah Deniz - SOCAR (State Oil Company of Azerbaijan), BP and Total - signed in January this year should also be noted. This agreement stipulates the conditions of management of TAP by an extended group of shareholders, including Statoil, E.ON, Axpo, SOCAR, BP and Total. Following the entry of the agreement into force (after and given selection of TAP as the final route), new shareholders will receive a 50 per cent stake in the project.
Nabucco West promises to sign a similar agreement in the future, that is prior to selection of the final route.

As can be seen, both projects have advantages. Final proposals for these projects are being presented, and the Shah-Deniz consortium has already begun their evaluation. Selection is sure to be made in favor of the most profitable option for Azerbaijan. However, even choosing one of these projects over the other does not render the other "out of the game". In the long term, both these projects implemented within the Southern Gas Corridor will be able to contribute to diversification of European supplies, providing the EU with large volumes of gas. And for them, it should be noted, there are very real prospects.