The consortium developing the giant Azeri gas field Shah Deniz gave the official nod to the Trans-Adriatic Pipeline (TAP) to carry its output from the Turkish border into Europe on June 28. While the decision gets the ball rolling on the EU's "southern corridor" strategy, some suggest TAP won't have as much impact on European gas markets as Brussels was hoping to secure.
The decision was in little doubt given that Austria's OMV - leader of TAP's only competitor, the EU-backed Nabucco West - had said two days previously that it had not won the contract. The two projects have been battling for the right to collect 10bn cubic metres of gas from the planned Trans-Anatolian Pipeline (TANAP) at the Turkish border to transit it to EU markets.
Both projects are part of Brussels' wider "southern corridor" strategy to tap gas from the Caspian and Central Asia while avoiding Russian infrastructure. For its part, Moscow is pushing to build the giant South Stream, which would deliver as much as 63bn cm via Bulgaria, Hungary and on to other states in southern Europe.
"For over two years now we have been working closely with and evaluated a number of pipeline projects to select the best option that will become part of the planned southern corridor," said Gordon Birell of BP - consortium leader of the Shah Deniz project, which also includes Azeri state energy company SOCAR, and Norway's state oil company Statoil. "I'm privileged to announce on behalf of the consortium that Azerbaijan's first gas to Europe will go via the Trans-Adriatic Pipeline," he added, according to Dow Jones.
Even ahead of Nabucco's announcement that it had lost out, TAP had looked increasingly likely to get the nod as the final decision loomed. The writing was on the wall when Socar announced on June 19 that it was closing in on the purchase of Greek gas distributor DESFA.
Wasting little time, Greek Deputy Energy Minister Assimakis Papageorgiou said on June 28 that DEPA has made an initial offer to buy 1bn cm from the pipeline. The same day, a Socar official announced that the Azeri state company is set to build Albania's first gas infrastructure.
The fact that TAP is significantly smaller and shorter than Nabucco West is seen as a factor in its victory. The 10bn cm capacity, 800km pipeline - backed by Swiss energy company Axpo, Statoil and Germany's E.ON - will run through northern Greece and southern Albania before traveling under the sea to Italy. The first supply of gas should reach Europe by 2019.
Nabucco again seems to have floundered on the back of its origins as a project more political than economic then. The original project had hoped to run 4,300km from Austria right to the Caspian, but pulled back to the 1,300km Nabucco West after years of failure to secure supplies to fill its massive planned capacity. Yet according to Shah Deniz, it is still an inefficient plan. Al Cook, BP Azerbaijan president for Shah Deniz told Bloomberg "commercial factors, including the cost to get the gas to the market and the market prices," blighted the EU-backed projects chances. "We saw a difference between the two pipelines measuring in billions of dollars."
"The rejection of Nabucco West," says Aleksandra Jarosiewicz at OSW, "seems to have been based on the greater options available for deliveries to individual markets connected to the TAP route and beyond - this is key considering the changes taking place on the EU market (a fall in demand, shale gas)." The pipeline will offer the Azeri producer access to markets such as Montenegro, Bosnia and Herzegovina via the planned Ionian Pipeline, as well as Western Europe thanks to the network of Italian pipelines it will link into.
"Furthermore," Jarosiewicz adds, "due to the connector under construction from Greece to Bulgaria ... there will be the possibility to deliver gas to the Bulgarian market and from there onwards to Romania and Hungary along connectors currently existing or under construction."
Long live Nabucco?
For the beleaguered Nabucco, the future looks somewhat bleak. Having already had its length and capacity slashed, the EU-backed project is now left to try to keep hold of its compliment of shareholders - which has seen more than one casualty in recent months - while it attempts to secure another potential supply.
That looks some way off however, with other producers set on the eastern shore of the Caspian Sea - a body of water that the five littoral states - which include Russia - have made little progress in opening up to energy transit. OMV reiterated comments made earlier in the week that it considers the project over. The Nabucco consortium said its shareholders would decide on its next steps in the coming weeks..
Azerbaijan attempted to offer it some optimism. "We clearly see the Nabucco pipeline corridor as the natural market for our future volumes of gas," Rovnag Abdullayev, president of Socar, told a news conference. "We expect that the ability of the southern corridor to bring new sources of supply to European markets will extend beyond the immediate areas transitted by TAP," he said. Socar officials suggested earlier this year that Nabucco West and TAP were "definitely not mutually exclusive."
Attempting to put aside the disappointment, EU Energy Commissioner Gunther Oettinger played up the fact that Europe will at least have a link to Caspian gas that does not cross Russia, which was the original dream of Nabucco when it was a mega-project.
"We have a definite commitment from Azerbaijan that gas will be directly delivered to Europe through a new dedicated gas pipeline system," he said in a statement. "Whether the system consists of two gas pipelines - TANAP and TAP - or one single pipeline as earlier projects had foreseen - does not make any difference in terms of energy security. We now have a new partner for gas, and I am confident that we will receive more gas in the future."
While Brussels insists that the flow of Azeri gas into Europe while avoiding Russia will boost energy security, others warn that the effect. Fitch Ratings added that by carrying a relatively small volume of gas into Greece and Italy, TAP's effect on spot markets will be minimal.
"The pipeline will terminate in Italy, which is already well supplied with natural gas from sources including Russia, Algeria and Libya," the analysts write. "Nabucco's proposed route through Bulgaria, Romania and Hungary would also have improved energy security for these countries, which are highly dependent on Russian gas."
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