Two major pipeline consortiums competing to export Azerbaijan gas to insatiable European markets will find out their fate by June 30.
Backers of the Trans-Adriatic Pipeline (TAP) and the Nabucco West Pipeline are competing for a piece of the 40 trillion cubic feet of natural gas reserves from the Shah Deniz field, located in the Caspian Sea and considered one of the world's largest gas-condensate plays.
The field is operated by BP and Statoil, which own 25.5% each in the development, and also counts State Oil Company of Azerbaijan Republic (10%), Russia's Lukoil (10%), France's Total (10%), Iran's Naftiran Intertrade Company (10%) and Turkish Petroleum Association (9%) as key partners in the project.
The consortium has already spent USD 6 billion on the first phase of the project to produce about 9 billion cubic meters of natural gas per annum and 50,000 barrels of crude oil per day.
The two pipeline consortiums are fighting to secure gas transportation right for the second stage of the Shah Deniz development, which lies 70 kilometers further out in the Caspian Sea and will include construction of bridges, subsea pipelines and the expansion of an existing terminal.
"The Shah Deniz Stage 2 project will bring gas from the Caspian Sea to markets in Turkey and Europe, opening up the 'Southern Gas Corridor'. Shah Deniz Stage 2 is expected to add a further 16 billion cubic meters per year (bcma) of gas production to the approximately 9bcma from Shah Deniz Stage 1," BP said in a statement.
Both pipeline consortiums submitted their final transportation offers on April 1, and will have an answer by the end of June.
Four companies in the Shah Deniz multinational consortium -- BP, Statoil, SOCAR, and Total -- will directly participate in negotiations and decision-making.
Sponsors of TAP include Axpo of Switzerland (42.5%), Norway's Statoil (42.5%) and E.ON Ruhrgas of Germany (15%). TAP has sweetened the deal by offering Shah Deniz consortium members the option to take a stake in TAP if it secures the bid.
"TAP's routing can facilitate gas supply to several South Eastern European countries including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and others," the pipeline developers note.
"TAP's landfall in Italy, the third largest gas market in Europe, provides multiple opportunities for further transport of Caspian natural gas to some of the largest European markets such as Germany, France, the UK, Switzerland and Austria."
Nabucco scrambles to the finish line
Meanwhile, the Nabucco West pipeline is led by Austria's OMV Gas & Power and includes Bulgaria's Energy Holding, Petroleum Pipeline Corporation of Turkey, Hungary's FGSZ Natural Gas Transmission, and Romania's Transgaz as key shareholders.
"Nabucco West will begin at the Turkish-Bulgarian border, traversing Bulgaria, Romania and Hungary and ending at the Central European gas hub, Baumgarten, in Austria," the consortium said.
"The capacity of the 48-inch diameter, 1329-kilometre pipeline is scalable between 10-23 billion cubic meter, which means Nabucco West is highly responsive to increasing market demand."
Washington-based Jamestown Foundation notes that TAP is surging ahead of Nabucco, especially as Statoil is both a partner in TAP and the Shah Deniz consortium.
The option to take a 50% stake in TAP also offers the Shah Deniz consortium more incentive to lean towards the project.
"This move also puts TAP one step ahead of Nabucco in their contest," Vladimir Socor, an analyst with Jamestown, said in a note.
"Nabucco lost time when its lead company, Austrian OMV, unrealistically sought minority stakes in Shah Deniz and the Trans-Anatolia pipeline project, in return for Shah Deniz producers entering the Nabucco project as shareholders."
TAP and Shah Deniz companies also jointly selected France's Societe Generale, as financial advisor for TAP's construction phases. Nabucco has not obtained a similar arrangement thus far, noted Socor.
The European Union also appears to be cool to the Nabucco project after initially viewing it as an alternative to Russian gas. Nabucco was originally competing with Gazprom's South Stream Pipeline but the Russian giant abandoned the project, leaving Nabucco and TAP to compete in a two-horse, all-West European race.
While TAP is 85% non-EU (Norway and Switzerland are not part of the currency union), it allows EU members like Greece to emerge as a "strategic" gas hub, and helps Switzerland and Germany diversify their gas supplies.
"Indications suggest that Nabucco-West is losing ground to TAP when key deadlines for the Shah Deniz consortium's pipeline selection decisions are imminent," said Jamestown's Socor.
"The Nabucco consortium's inherent weaknesses, compared to its stronger competitor are apparent, making it difficult to capitalize on Nabucco-West's inherent advantages as a strategic project."
The Shah Deniz partners are on track to make a final decision about the project by June, noted Greg Saunders, senior director of international affairs in BP's Washington office, at a recent conference. "The dotted line is about to become solid."
© alifarabia.com 2013
