RWE jumps from Nabucco ship as binding bid looms

By bne IntelliNews April 15, 2013

bne -

Just two weeks or so ahead of the deadline for the submission of the pipeline consortium's binding bid to transport Azeri gas to Europe, German utility RWE has quit Nabucco, selling its 16.7% stake to OMV.

The Austrian oil and gas group OMV announced on April 14 that it has doubled its stake in the EU-backed pipeline project, which was originally designed to open up the "southern corridor" - a route that taps gas in the Caucasus and Central Asia while circumventing Russia, which currently dominates transit routes out of the region. RWE confirmed its stake was transferred on March 1, but offered no details on the deal.

The German utility, which is in the midst of a divestment drive in a bid to lower debt, first suggested it could sell its interest in Nabucco in May. Alongside OMV, it said in December that the pair was in talks. OMV CEO Gerhard Roiss said in February that the Austrians would acquire the stake, according to AFP.

Still, the sale is hardly a vote of confidence in the troubled Nabucco West pipeline project as it's is now known, at a crucial time. The consortium announced on April 12 that it will submit its binding bid for the job of carrying 10bn cubic metres (cm) of gas from the second phase of the giant Shah Deniz field in Azerbaijan to Europe at the end of the month.

Under that bid, the pipeline would meet the Trans-Anatolian Pipeline (TANAP) - which will transport the gas across Turkey - at the Bulgarian-Turkish border. It would then carry it 1,300km to the Baumgarten gas storage hub in Austria. The consortium behind Shah Deniz is set to make a final decision between Nabucco or the Trans-Adriatic Pipeline - which heads through Greece and across Albania to Italy - by the end of June.

The new Nabucco West pipeline is a serious downgrading of original plans for a "mega" project that would have invloved a 4,000km pipeline to the Caspian with a capacity of 30bn cm per year. However, it failed to tie down any gas supplies, while estimated costs rocketed. As it teetered on the edge of collapse last year, the consortium behind the project - which also includes Bulgaria's BEH, Turkey's Botas, Hungary's MOL, and Romania's Transgaz - announced it would now try to build this scaled-down Nabucco West version.

"You can be pretty sure that this is not going to be the final (Nabucco) shareholder structure as it is today," an OMV spokesman told reporters according to Reuters when announcing the purchase of the RWE stake.

It is not clear whether that means more companies are set to join or leave the list of shareholders. MOL is slowly retreating from its involvement in the consortium since it stopped funding project costs last year. CEO Zsolt Hernadi said in May that the Hungarian energy company is ready to sell its stake.

Nabucco West's owners, in the long term, will be countries and companies with gas reserves bound for Europe, Roiss has said in the past. As de facto leader of the consortium, OMV has increasingly insisted that Nabucco has several options for gas supplies from the region, and has mentioned the recent discovery of a potentially large gasfield in the Black Sea by its Romanian subsidiary. Roiss previously noted that RWE has no gas projects in the Black Sea.

However, analysts are dubious over the Austrian company's decision to raise its exposure in Nabucco. "We believe that the market is highly skeptical regarding the success of Nabucco West, so we think that OMV increasing its stake will be taken negatively by investors," Erste Bank writes in a note. "Nabucco West is struggling with both a lack of resources (although the Shah Deniz-II pipeline could partially fill in) and the lack of demand in the CEE region."

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