Category: Business

Turkey to gain in Europe gas pipeline race

By REUTERS

Published: Jan 13, 2012 01:44 Updated: Jan 13, 2012 01:44

LONDON: Turkey stands to gain most from major movements in Europe’s gas supply infrastructure expected in 2012 as both Russia and Azerbaijan negotiate pipeline contracts to ship gas to the European Union through the Bosporus.

BP and Statoil lead Azerbaijan’s Shah Deniz II gas project which is expected to declare a winner in April to transport its 10 billion cubic meters (bcm) of gas per year to Europe.

The three projects competing for the contract are Nabucco, TAP, and ITGI.

At the same time, Russia’s Gazprom is pushing ahead with its huge South Stream gas pipeline project that aims to pump over 60 bcm of gas a year to Italy.

Whatever the outcome of these developments, Turkey stands to gain as all projects would pass through it, offering prospects of healthy transit fees and new gas supply sources.

Analysts say that Turkey has positioned itself well at the negotiating table with Russia, Europe and Azerbaijan, and that its decisions would likely make or break projects.

“Turkey is probably playing its gas hand very well. It picks the winners and knows when to decide whether they’re going to go forward with something. I would think they have decided South Stream is going to be more viable,” said Steven Wardlaw, a partner at law firm Baker Botts, which advises the gas marketing entity for participants in the Shah Deniz project.

“We always thought that Nabucco was going to be a fairly marginal project. It’s a pipeline designed by people who want the gas, rather than South Stream, which is designed by people who have the gas,” he added.

Turkey gave Russia permission last December to build the South Stream pipeline through its territory, supplying the missing piece needed by Moscow to secure markets for its gas in Europe, possibly at the expense of the Brussels-backed Nabucco project. The South Stream pipeline plans to transport 63 bcm of Russian gas a year into Europe by crossing the Black Sea and Turkey.

This is equivalent to about 15 percent of the European Union’s annual gas consumption.

While South Stream’s prospects improve, support for Nabucco is waning.

The pipeline project, led by Austria’s OMV and Germany’s RWE, plans to ship gas from Central Asia through Turkey and southeastern Europe into Austria.

Its critics say that its costs of over $12 billion have risen too high and that there is not enough gas available to fill such a big pipeline with non-Russian supplies.

As a result, the tone in Brussels and with some of the project’s major partners is changing.

Asked in an interview in late 2011 whether he was confident Nabucco would go ahead, EU Energy Commissioner Guenther Oettinger would say only that he was confident the Southern Corridor would open.

“I’m confident of opening the Southern Corridor, but it’s primarily up to the Shah Deniz Consortium to decide to whom they want to sell their gas,” he said.

Sources at RWE and OMV have also suggested that their impression was now that Nabucco would not be built in its original form.

“We’re looking for easier and cheaper alternatives to secure our future gas needs than from the ever more expensive Nabucco,” one source at RWE said. “Given that we haven’t spent much money on Nabucco yet, it would be easy to get out of it.”

Instead of one of the three single pipeline projects getting the heads-up from Azerbaijan, it seems more likely that a system of regional existing and future pipeline infrastructure could ship the gas to Europe.

“The Shah Deniz project team are evaluating a fourth potential export option which would transport gas to markets in South-Eastern Europe through a system of regional existing and future interconnector infrastructure,” the consortium said.

The pros and cons of each project mean that analysts think a merger is the only viable solution.

“We might see a consolidation of projects before any single route is decided upon,” energy consultants JBC Energy said.

TAP said it would be open to such consolidation talks.

This could also mean that Nabucco is downsized and merged with other projects in order to create a complex Southern Gas Corridor system of pipelines, with Turkey at its centre.

Sources in Brussels said this was the European Commission’s preferred option as it would mean it could save face by not having to officially kill off Nabucco, but instead present a coherent Southern Gas Corridor that would offer Europe diversification of supplies.

These pipeline projects running through Turkey add to plans in Ankara to exploit recent gas discoveries in the eastern Mediterranean Sea.

Although most discoveries have so far been made in Greek Cypriot or Israeli waters, Cyprus has said it is willing to share the revenues from any gas find with Turkish Cypriots.

But whichever pipelines get built, and even if Turkey gets some proceeds from Cypriot gas, non-Russian gas supplies to Europe will still be dwarfed by Russia’s gas flows.

Russian exports currently around 150 bcm a year could reach a maximum of 230 bcm by 2017, a report from the Oxford Institute for Energy Studies said in January. In its lowest scenario, Russian exports to Europe would still be around 100 bcm a year.

This compares with a maximum of less than 30 bcm a year which Europe is likely to receive from Azerbaijan and the Caspian region, according to the Oxford Institute.

via Turkey to gain in Europe gas pipeline race – Arab News.