Azerbaijani official: Quicker profits key for European gas pipeline choice
By Aynur Jafarova
Azerbaijani gas producers will soon choose between two pipeline routes, making their choice based upon which of the planned projects promises quicker returns, dpa quoted Azerbaijan's Minister of Industry and Energy Natig Aliyev as saying.
The consortium developing Azerbaijan's giant Shah Deniz field in the Caspian Sea is considering the Trans Adriatic Pipeline (TAP) and Nabucco West for gas export to European markets. The consortium will make its final decision on the pipeline route in June and a final investment decision by October 2013.
As British energy group BP, Norway's Statoil, Azerbaijan's state energy company SOCAR and other Shah Deniz partners had already seen production delayed from 2012 to as late as 2018, one key factor would now be which route is cheaper to build, Aliyev said, referring to the consortium's plans to invest in the preferred pipeline project.
"Now, the main factor for partners is the commercial factor over the short term. They have to (get) return on their investment as quickly as possible," he said.
However, Aliyev said that the Shah Deniz group would also consider long-term issues, in particular, such as which route promises a bigger customer base.
Experts also note that the commercial component will play an important role in the selection of a final route for transportation of Azerbaijani gas to Europe. Several factors will be taken into account while choosing between the two pipeline projects and the commercial side of the issue will be one of the main factors, they say.
Furthermore, experts say 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. From this point of view, the comparison of both pipelines is important.
Nabucco West, a short-cut version of the Nabucco project, which envisages construction of a pipeline from the Turkish-Bulgarian border to Austria, and TAP are part of the Southern Gas Corridor, which is one of the EU's priority energy projects. The Southern Gas Corridor aims at diversifying the routes and sources of energy supply, thereby increasing secure delivery.
Experts believe the initial advantage of Nabucco West is higher gas prices in the Balkan markets caused by the complete dependence on a single gas supplier. If viewed separately, the Balkan countries are small markets. However, in combination they could guarantee a large market.
The TAP project that is competing with Nabucco West is designed to transport gas from the Caspian region via Greece and Albania and across the Adriatic Sea to southern Italy and further into western Europe. TAP's initial capacity will be 10 billion cubic meters per year, but it is easily expandable to 20 billion cubic meters.
The advantages of the TAP project include the higher gas price on the Italian hub by 20 percent compared with the price in western Europe as well as significant financial potential.
Gas to be produced within the second phase of Shah Deniz field development is considered as the main source for the TAP and Nabucco West pipeline projects.
Shah Deniz, which is one of the world's largest gas-condensate fields, has estimated reserves of 1.2 trillion cubic meters of gas.