Azernews.Az

By Aynur Jafarova

The Trans Adriatic Pipeline and its shareholders Axpo, Statoil and E.ON have concluded a shareholder agreement with three members of the consortium developing Azerbaijan's offshore Shah Deniz gas-condensate field - Azerbaijani state energy company SOCAR, BP and Total, the TAP website said on Tuesday.

According to TAP the Shareholder Agreement, finalized and initialed by all parties, specified how the TAP Joint Venture will be governed by its shareholders group, which includes Statoil, E.ON, Axpo, SOCAR, BP and Total.

The Shareholder Agreement will come into force once SOCAR, BP and Total decide to exercise their options to join the TAP JV, taking a combined stake of up to 50 percent.

Kjetil Tungland, the Managing Director of TAP, praised the fact that members of the Shah Deniz consortium, TAP and its shareholders were able to agree on the principles of a future JV.

"The Shareholder Agreement is yet another important milestone demonstrating TAP's relative advanced position compared to alternative pipeline routes, following the signing of the Cooperation Agreement, Option and Funding Agreements, in June and August 2012 respectively. I look forward to continuing the same close cooperation with the Shah Deniz Consortium throughout the course of 2013," Tungland said.

TAP will transport natural gas from Shah Deniz, taking it via Greece and Albania, and across the Adriatic Sea to southern Italy, and further into western Europe. The project is designed to expand transportation capacity from 10 to 20 billion cubic meters per year, depending on supply and demand.

In February the Shah Deniz consortium made TAP a priority route for exporting Azerbaijani gas to Italy. Later, in June, the consortium chose Nabucco West, a rival project, as the single pipeline option for potential export of Shah Deniz Stage 2 gas to Central Europe. Now the question is: will Nabucco West or TAP be chosen?

Experts believe that the selected route must be the most commercially viable and the selected market should be able to offer the exporters long-term security of demand for a period of at least 20-25 years. It is important to determine the advantages and disadvantages of both routes.

Nabucco West is a short-cut version of the Nabucco project, which envisages construction of a pipeline from the Turkish-Bulgarian border to Austria. Shortening of the pipeline is believed to have increased its financing chances many times.

According to experts, the first advantage of Nabucco West is higher gas prices in the Balkan markets as a result of their complete dependence on a single gas supplier.

If the planned and EU-supported interconnectors are completed between the countries located along the Nabucco West route (Bulgaria, Romania, Hungary, Austria) and the western Balkans (Serbia, Croatia, Bosnia and Herzegovina) they would have an additional benefit and strength. Balkan countries may be small markets if viewed separately, but in combination they could guarantee a solid market, Farhad Mammadov, Director of the Centre for Strategic Studies of Azerbaijan, believes.

Nevertheless, some analysts indicate several disadvantages of Nabucco West, saying the markets along this route are small and gas import volumes are limited. Moreover, as more sources of supply become available in the Balkans, the price for the sellers will eventually reduce. Furthermore, the new discoveries on the Romanian coast of the Black Sea would pose some risks for the ability of the market to absorb imported gas.

The first advantage of the TAP project is the higher gas price on the Italian hub by 20 percent compared with the price in western Europe.

Another advantage is significant financial capability. TAP's shareholders are major global, European and regional players that would only increase the pipeline's commercial viability.

TAP recently signed two memorandums with the Croatian and Bosnian system operators, Plinacro and BH-Gas, which are both promoting the Ionian Adriatic Pipeline (IAP). The IAP aims to deliver gas to Albania, Montenegro, Bosnia and Herzegovina and Croatia. If materialized, TAP would be able to guarantee access of Azerbaijani gas to the western Balkans as well.

However, there are several risks for TAP: reduction of gas consumption in Italy as a result of the financial crisis; the prospect of deliveries of liquefied gas from other regions could reduce prices on the Italian market.

The Shah Deniz consortium expects to make a final decision on the preferred European gas export route by mid-2013.

Azerbaijan treats both TAP and Nabucco West gas pipeline projects equally, Azerbaijan's Ambassador to Albania Rahman Mustafayev said earlier.

Experts say that if the Shah Deniz consortium's decision is delayed, Iraqi, Qatari, North African or East Mediterranean gas will "intervene" and capture the markets which Shah Deniz might target.