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Pilot flame flickers on gas pipeline project 1 février 2012

Posted by Acturca in Caucasus / Caucase, Energy / Energie, EU / UE, Russia / Russie, South East Europe / Europe du Sud-Est, Turkey / Turquie.
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Financial Times (UK) Wednesday, February 1, 2012, p. 18

By Guy Chazan in London and Gerrit Wiesmann in Berlin

Moves are afoot to scale back an €8bn plan to reduce Europe’s dependence on Russian energy imports. The consortium behind one of Europe’s most ambitious infrastructure projects – the Nabucco gas pipeline – is considering ways of scaling back the venture after recent moves carried out by Turkey and Azerbaijan raised questions about its viability .

The reassessment of the project comes as a BP-led consortium prepares to choose a transport route to bring gas from Azerbaijan to European markets, with Nabucco as one of the candidates.

Named after the Verdi opera, Nabucco was first mooted 10 years ago as a means of reducing the European Union’s dependence on Russian energy imports by bringing gas from the Caspian Basin into the heart of Europe via a new southern corridor.

But its €8bn price tag is high and its investors, which include Austria’s OMV and German utility RWE, have so far failed to sign any supply contracts. Some critics wonder if they will ever have enough gas to fill the pipeline.

« You can’t build a business plan based on wishful thinking, » says Elio Ruggeri, chief executive of a rival project – the Interconnector-Turkey-Greece-Italy (ITGI). « Lenders want to see a contract where the Azerbaijanis, Iraqis and Turkmen commit to supply gas. »

Nabucco’s fate is wrapped up in a big gas field in Azerbaijan’s sector of the Caspian Sea called Shah Deniz. A consortium of oil producers that includes BP, Statoil, Total and the Azeri state energy company SOCAR is spending up to $22bn to develop the second phase of the field, which will produce 16bn cubic metres of gas a year from 2017.

Some 6bcm a year of that will go to Turkey and the rest will go to Europe. Nabucco would have initial overcapacity of 31bcm a year.

Last year, the Shah Deniz partners launched a tendering process to select a transport option for moving their gas to Europe. Three pipeline projects submitted their final tariff offers – Nabucco, ITGI and the Trans-Adriatic Pipeline (TAP). BP and its partners were supposed to choose a winner by the end of 2011, but the decision was put off until the first quarter of this year.

In recent months, the outcome of the tender has become more unpredictable. Late last year, Turkey and Azerbaijan injected a new variable into the equation by launching the Trans-Anatolian gas pipeline project (Tanap), which would run from Turkey’s eastern border with Azerbaijan to its western border with Bulgaria – in effect copying the Turkish section of Nabucco.

Tanap, which is backed by the US, would be able to take volumes from Shah Deniz 2 and could be expanded to take additional Azeri production in the future.

BP has also put forward its own solution – the South-East Europe Pipeline – which would start in western Turkey and cross Bulgaria and -Romania to reach Hungary’s eastern frontier.

Meanwhile, Nabucco’s shareholders insist that they are still in with a chance. « We think Nabucco is realistic, » says Stefan Judisch, chief executive of RWE Supply and Trading, the utility’s pipeline arm. « The mere fact that we’ve not had a decision in favour of any other pipeline shows this. » He says Nabucco offers « the best basis for a compromise, one which could bring all interests under one hat ».

Mr Judisch insists that RWE has no intention of withdrawing from Nabucco but acknowledges that the announcement on Tanap has « created a new situation ».

A person close to the Nabucco consortium says that the partners could pitch a slimmed-down version of the pipeline, provisionally called « Nabucco West », which would form an extension to Tanap and would cost 60 per cent less than the full project.

That would suit RWE, which is burdened by the cost of Germany’s exit from nuclear power and has been divesting assets to reduce its debt and protect its credit ratings.

The company has hinted as much. Mr Judisch has said that RWE appreciates the opportunity that Tanap creates to « substantially lower our capital commitment ».

However, many analysts think that the Shah Deniz partners could ultimately eschew Nabucco altogether and instead choose a combination of Tanap and ITGI, TAP or the BP South-East Europe Pipeline.

TAP, backed by Norway’s Statoil, Germany’s Eon Ruhrgas and Switzerland’s EGL, says that its advantage is that its capacity can be expanded to take in more gas from other sources as and when it becomes -available.

« TAP would allow Azerbaijan to transport all of Shah Deniz phase 2 gas to market, but can also be scaled up to allow for additional volumes from Azerbaijan, or Iraq and Turkmenistan in the future, » says Michael Hoffmann, the head of external affairs at TAP. « And it can do that more economically than Nabucco. »

ITGI, backed by Edison of Italy and the Greek gas company DESFA, also thinks its smaller scale is a selling point. « Between now and 2020, Europe doesn’t need that much additional gas, so a medium-sized project that serves southern Europe and the -Balkans is a good pitch, » says Mr Ruggeri.

Additional reporting by Joshua Chaffin

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