Final investment decision on Nabucco could come in 2010

By bne IntelliNews September 8, 2009

Nicholas Watson in Prague -

Following swift on the heels of this summer's intergovernmental agreement supporting the Nabucco gas pipeline, the consortium building the EU-backed energy venture expects to finalise the financial structure of the project by the end of the year.

Speaking at an economic forum in Vienna on September 1, Werner Auli, head of gas and power at OMV, the Austrian oil and gas firm leading the project, said concluding the financial structure of the estimated €8bn gas pipeline by the end of 2009 would allow the shareholders in Nabucco - which together with OMV includes Germany's RWE, Hungary's Mol, Romania's Transgaz, Bulgaria's Bulgargaz and Turkey's Botas - to commit to a final investment decision (FID) in early 2010.

Making an FID would, explain analysts, help the consortium overcome one of the projects biggest weaknesses, namely getting enough gas to fill the 31bn cubic metres per year (cm/y) pipe, which is designed to break Russia's stranglehold on gas exports to Europe by importing gas from the Caspian basin and Middle East without crossing Russian soil. "The commitment to an FID on behalf of the Nabucco consortium would be a strong indication that the project is moving ahead and would likely provide sufficient incentive for the Central Asian, as well as potential Middle Eastern suppliers, to shift their official positions and ensure the flow of gas through the pipe," says the consultancy IHS Global Insight.

Azerbaijan would be the first and foremost supplier to the pipeline, though it hasn't yet signed any agreement to that effect; other potential suppliers that attended July's intergovernmental signing ceremony were Turkmenistan, Iraq, Egypt, Kazakhstan and Uzbekistan.

Notably absent from the signing ceremony in July was Iran, which Turkey is keen to bring on board, but which the US is set against until the impasse over the country's nuclear programme is resolved. OMV's Auli said the country is currently not being considered as a perspective supplier, but wouldn't rule out the possibility of this changing in the future.

Perhaps the biggest hope for the pipeline is Turkmenistan, which is making much more friendly advances to Europe since President Gurbanguly Berdymukhamedov took over from the late (and unhinged) president Saparmurat Niyazov. Relations with Europe were given a boost in April when the country's already strained relations with Russia, which currently buys most of the annual 72bn cm/y of gas produced, worsened. Ashgabat blamed an explosion on the Central Asia Centre (CAC) pipeline on Gazprom, which had reduced its imports of gas from Turkmenistan at short notice, apparently leading to a dangerous build-up of pressure in the pipeline. In late August, Berdymukhammedov visited both Bulgaria and Turkey to discuss bilateral relations, including the Nabucco pipeline project.

Mikhail Korchemkin, executive director of East European Gas Analysis, is confident that Turkmenistan will participate if Nabucco does get built. "Turkmenistan will supply gas to Europe via the Nabucco pipeline for two reasons: first, Europe will continue to pay the highest prices, making it the most attractive gas market in the long run; second, Nabucco is the shortest route from Turkmenistan to the EU," he says.

On the demand side, OMV's Auli said a survey carried out last year indicated that the demand for gas from Nabucco far outstrips the pipeline's annual transportation capacity of 31bn cm/y. "A survey of potential customers last year showed that Nabucco will be two to three times overbooked," Auli was quoted by newswires as saying.

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Final investment decision on Nabucco could come in 2010

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