Back from the dead - Shah Deniz plumps for Nabucco West

By bne IntelliNews June 29, 2012

bne -

The international consortium developing Azerbaijan's offshore Shah Deniz II field has selected the planned Nabucco West pipeline as its preferred option for a northern gas transit route from Turkey to Europe. A final decision on whether to export the gas through Nabucco West or via the southern route, for which the Trans-Adriatic Pipeline (TAP) has already been selected, will be made within a year.

BP, which leads the Shah Deniz consortium alongside Statoil, said in a statement on June 28 that Nabucco West had been selected as the "single pipeline option" for exports of Shah Deniz stage II gas to Central Europe.

The consortium picked Nabucco West over the South East Europe Pipeline (SEEP), a second option for the northern route to carry Azeri gas from the Turkish border into Central Europe. "Development of the South East Europe Pipeline (SEEP) project, which had been assembled by Shah Deniz partners in collaboration with Bulgaria, Romania and Hungary, will cease," the statement said.

According to BP, which was one of the shareholders in SEEP, the principal reason for the decision in favour of Nabucco West was the greater greater maturity of the project. This "gave the consortium confidence that this project could be developed and delivered on the same timeline as Stage II." Shah Deniz is one of the world's largest gas condensate fields, with reserves of over 1 trillion cubic metres. The second phase development, which started in April 2012, will cost an estimated $25m, wirth commercial production due to start in 2017.

The announcement comes just two days after Azerbaijan and Turkey signed off on the 16bn cubic metre per year (cm/y) Trans-Anatolian Pipeline (TANAP), which will carry the gas from Shah Deniz to the EU border. That project did much to drive the final nail into the coffin of the original EU-backed Nabucco scheme, which had planned a 31bn cm/y pipeline to span the entire 4,000km route.

Besieged by worries over a lack of progress in sourcing supplies to fill it, as well as cost, Nabucco - which was a centerpiece of Brussels' Southern Gas Corridor strategy to diversify EU gas supply away from Russia - finally outlined the smaller Nabucco West in May. Meanwhile, the signing of the intergovernmental agreement on TANAP means that it now needs to know its eventual European connection to move forwards, and the announcement of that Nabucco West has won the northern route appears to signal an acceleration of the decision process.

There are now just two options remaining. In mid-2013, the Shah Deniz consortium will make a final decision between Nabucco West and TAP - which would run from the Turkish border through Greece and Albania, and under the Adriatic to Italy. TAP was selected for the alternative southern route, over the Interconnector Turkey-Greece-Italy (ITGI) pipeline in February.

BP says that the Shah Deniz consortium will continue to work with the owners of both Nabucco West and TAP. However, the fact that the British-based energy giant said on June 27 that it intends to take a significant stake in the TAP consortium - which currently consists of Statoil, E.On and EGL - will likely set alarm bells ringing for Nabucco. At 520km and a cost of around $2bn, TAP is both the shorter and the cheaper of the two options.

Rashid Javanshir, president of BP for Azerbaijan, Georgia and Turkey region, said in a statement that the June 28 decision in favour of Nabucco West represented "another important milestone in the development of Shah Deniz Stage II and the transportation of gas resources from the Caspian to Europe."

Rovnag Abdullayev, president of the State Oil Company of the Azerbaijan Republic (SOCAR), also welcomed the announcement. ''This decision constitutes a significant step towards implementation of the Southern Gas Corridor Strategy which would serve the strategic interest for sustained energy security of European countries as well as Azerbaijan, Georgea and Turkey," he said.

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