Skip to main content

Nabucco West loses out to TAP in Shah Deniz II gas pipeline project

Oilfield Technology,


Nabucco West, the Austrian-led consortium that was bidding to build a pipeline to bring Azeri gas to Europe, has not been selected by the gas field's operators.

Nabucco West, one of Europe’s most ambitious infrastructure projects, has lost out to its rival in the contest to supply Caspian gas to Europe, bringing to an end one of the most keenly fought battles in European energy politics.

For years, Nabucco has been vying with a smaller venture known as the Trans-Adriatic Pipeline, or TAP, for the right to transport gas from a big offshore gas field in Azerbaijan to European consumers. The BP-led consortium that is developing the giant Shah Deniz II field chose the rival TAP, formed by Statoil, AXPO and E.ON Ruhrgas.

"The Nabucco project is over for us," Gerhard Roiss, Chief Executive of the Austrian energy company OMV, told a hastily called news conference, putting to rest the suggestion that Nabucco would also be built.

The consortium that chose the TAP project over Nabucco West to transport Azeri gas to Europe pointed to higher gas prices in Italy and Greece as the reason, OMV said. Roiss questioned whether higher gas prices could really be achieved in austerity-plagued Greece or plentifully supplied Italy, which lie on the TAP route. "The question of whether that is a fig leaf for a political decision I leave to you to judge," he said.

The official announcement from OMV

“The Shah Deniz II consortium informed OMV, as a shareholder of NABUCCO Gas Pipeline International Gmbh (NGPI), about the decision on their preferred gas transportation route to Europe. The Nabucco West project was not selected by the consortium. While OMV accepts the decision of the consortium, OMV is of the opinion that the offer which was submitted by NGPI met all the selection criteria and was highly competitive.

“The decision does not influence OMV’s strategy of growing upstream and integrated gas. OMV intends to play a role in further securing and diversifying the gas supply to Europe and will assess alternatives to complement the existing supply routes. OMV believes that a lot of highly valuable work and goodwill has been put into this project which will pay off in future projects.”

A week of revelations

Last week it became known that Azeri state energy SOCAR was to buy a majority stake in Greece’s natural gas grid operator DESFA. The news was interpreted by experts as favouring the choice of TAP. In addition, press reports and rumours have suggested that Azerbaijan doesn’t want trouble with its Russian neighbour. Russia has designed its own pipeline project, South Stream, as a rival to the EU-favoured Nabucco.

The consortium had been due to announce on Friday 28th June which of the two export routes it had chosen. However, it became clear on Wednesday that TAP had won after one of Nabucco West’s shareholders, the Austrian oil and gas company OMV, conceded defeat.

TAP declined to comment.

Decision marks a turning point

The decision on the route, though a big disappointment for Nabucco, is a huge milestone in European efforts to create a new southern supply corridor that could tap burgeoning gas reserves in the Caspian Basin and Middle East, and lessen the continent’s dependence on Russian imports.

Nabucco, whose shareholders are BEH of Bulgaria, BOTAS of Turkey, Hungary’s FGSZ, Austria’s OMV, Romania’s Transgaz and GDF Suez, was long favoured by the European Commission because its route passes through countries in south-eastern Europe that are almost completely reliant on Gazprom’s gas.

However, with the emergence of TAP, the Commission decided not to explicitly back one pipeline over the other. Socar, the Azeri state oil and gas company, which had also initially supported Nabucco, took a similarly neutral position.

The Nabucco consortium was also forced to substantially scale back its plans when Azerbaijan and Turkey announced they were teaming up to build a Trans-Anatolian pipeline, known as Tanap, which would have duplicated much of the route of the original Nabucco.

Next moves

OMV spokesman Johannes Vetter noted that TAP ends up in Italy, which is already a highly diversified market, receiving pipeline gas from both Russia and Algeria, as well as other sources. “It is questionable whether TAP meets the political objectives of a southern gas corridor which was to diversify Europe’s sources of gas,” he said.

But people familiar with the pipeline negotiations said that, ultimately, the decision was made on commercial rather than political grounds: the relative capital cost of each venture, the price the developers were able to procure for Azerbaijan’s gas and the operating cost over the life of the project. TAP was apparently more attractive because it was cheaper, and 450 km shorter than Nabucco.

Gerhard Roiss, OMV’s chief executive, acknowledged that the Shah Deniz consortium was ultimately swayed by the prospect of higher gas prices in Italy and Greece than in the markets served by Nabucco.

Mr Vetter added that Nabucco was not dead, and could now be reconfigured to ship gas from the Black Sea, rather than the Caspian. OMV and ExxonMobil have recently discovered large amounts of natural gas in the Black Sea off Romania.

Edited from various sources by Elizabeth Corner.

Read the article online at: https://www.oilfieldtechnology.com/exploration/27062013/nabucco_west_loses_out_to_tap_in_shah_deniz_ii_gas_pipeline_project_360/

 

Embed article link: (copy the HTML code below):