Will Nabucco gas pipeline be downsized?

Will Nabucco gas pipeline be downsized?

The Nabucco consortium is considering a much smaller project than the originally planned pipeline to carry Caspian natural gas to Europe, bowing to the reality of low gas amounts available at the moment in the region, according to people familiar with the situation, The Wall Street Journal reported.

Nabucco’s original project was a 3,900 kilometer-long natural-gas pipeline running from the eastern Turkish border with Georgia all the way to Austria, with a capacity of 31 billion cubic meters, while the new proposal would only run between Bulgaria and Austria and have roughly half of that capacity, the people said. However, the original project is still officially on the table, a person familiar with the matter said.

The consortium – formed by German utility RWE AG and six other European energy companies -confirmed it is looking at different alternatives. “We are in the process to calculate several scenarios, including different sizes in terms of capacity and length of the pipeline. However, our preferred scenario still is the base-case and no final decisions have been made yet,” Christian Dolezal, spokesman for the Nabucco consortium, said Friday.

The news comes in the midst of a tight battle among different pipeline projects to bring the first gas ever from the Caspian to Europe – roughly 10 billion cubic meters expected from Shah Deniz II, a field in the Azerbaijani area of the Caspian basin which is being developed by a consortium that includes energy giant BP PLC.

The issue is crucial for the European Union, which is seeking to open up a new “corridor” of gas imports from Central Asia, in an effort to diversify its gas supplies away from Russia, and Nabucco has long been the European Commission’s favored project.

But experts have been questioning whether there is enough gas in Central Asia to fill the originally planned pipeline, as the Shah Deniz volume amounts to only a third of Nabucco’s capacity. And the chances of getting additional gas from Iraq or Turkmenistan have been fading, prompting the consortium to consider an alternative. “It’s evident: there aren’t 31 [billion cubic meters],” a person familiar with the matter said.

The re-focus of Nabucco on the European bit of the transit comes as the state-controlled oil company of Azerbaijan, Socar, and its Turkish peer Botas are proposing to build a pipeline to carry the gas across Turkey, called TANAP. If built, TANAP would effectively make a portion of Nabucco’s original project redundant.

The consortium has been planning to build the Nabucco pipeline for years, but doubts about some members’ commitment to the project have recently emerged. Last month, RWE’s Chief Executive Jürgen Grossmann said that, while still keen to import Caspian gas to Europe, RWE favors options “that keep our own financial exposure limited.” The company, which has been badly hit by the German retreat on nuclear power, could support other pipelines that have competed with Nabucco, Grossmann noted.

Nabucco is competing with a similar project called South East Europe Pipeline designed by BP, and with two other pipeline plans that aim at carrying the Caspian gas to Italy. The Trans Adriatic Pipeline, or TAP, is sponsored by a group of companies that includes Statoil ASA, the Norwegian energy giant that also has a 25.5% stake in the Shah Deniz consortium. The other competitor is the Interconnector Turkey-Greece-Italy, or ITGI, which is being developed by Italian utility Edison SpA and Greek gas company DEPA.

Nabucco’s prospects have also been challenged by the Russian-led South Stream pipeline, whose partners include European giants like Germany’s BASF SE and France’s Électricité de France SA. South Stream is an even bigger and more expensive 63 billion cubic meter pipeline project that would take Russian gas across the Black Sea to Europe.

 

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