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Nabucco is Dead
http://blogs.euobserver.com/petersen/2011/11/17/nabucco-is-dead/
Nabucco is dead. BP killed it. The epic 5-country natural gas pipeline
that was to bring Caspian resources to Central Europe to lessen EU
dependence on Russian supplies was scuppered in late September by the
very same supermajor that was supposed to supply it with gas from
Azerbaijan. As an October 1 deadline approached for Nabucco and its
smaller competitors to submit their commercial transit and tariff
terms to Azerbaijan's Shah Deniz consortium - one of the holders of
the gas - BP, with a 25.5% stake in Shah Deniz, proposed its own
alternative project: the South East Europe Pipeline (SEEP).
Essentially a portion of Nabucco, it is smaller, cheaper and more
realistic than its operatic alternative. And it's got a gas-holding
supermajor behind it. Most importantly, while Nabucco at around 30
billion cubic meters (bcm) a year was a project with three times the
capacity of natural gas immediately available from Shah Deniz, SEEP's
capacity hovers around 10 bcm - just enough to realize the task at
hand. BP representatives have also discussed the possibility for that
capacity to expand in the future, should more gas - from Azerbaijan's
newly confirmed Absheron field or from Turkmenistan across the Caspian
- become available. On the face of it, SEEP provides less risk
up-front and flexibility in the long run.
In some ways, this is welcome news. Although just an idea, Nabucco was
always a white elephant of sorts. It was endorsed by the European
Commission as a strategic project to help solve Europe's energy
security woes, but it put the cart before the horse. Building transit
capacity without available resources to fill it is not the way that
pipelines are built. There were also serious concerns about its cost
(up to 20 billion USD at last estimate) and financing. Even with seed
funds from the European Bank for Reconstruction and Development,
(EBRD) it would have been an enormous challenge to find private sector
investment for a project of this scale in today's economic
environment. Nabucco's consortium, a hodge-podge of national energy
companies along its route and larger players such as Germany's RWE,
never had the clout that even a beleaguered supermajor like BP can
bring to the table. It is perhaps not surprising that Nabucco's
start-date was delayed at least four times over an eight-year period.
All this said, BP's alternative may have killed off a competitor, but
it is far from the ideal project. Ironically, one of Nabucco's
original smaller competitors is closer to fitting the bill. The
Trans-Adriatic Pipeline (TAP) is also a 10 bcm project, but with the
important option of expanding to 20 bcm should gas become available.
It has strong shareholders in Statoil, E.ON Ruhrgas and EGL, so that
it won't have to go begging for investment. The main difference is
that SEEP will terminate in Austria, whereas TAP plans to head to
Italy through Greece and Albania. A notable difference is that TAP has
laid the groundwork with transit countries and regulatory hurdles for
several years, whereas SEEP was just announced.
SEEP may well have legs. With BP's Russian investments foundering, it
has announced that it is doubling down on commitments to develop
Azerbaijani gas and oil reserves. Having its own export pipeline fits
neatly into its new strategy. But, it will face competition from its
Shah Deniz consortium partner Statoil - also with 25.5%. As a major
shareholder in both Shah Deniz and TAP, Statoil claims there are
`Chinese walls' between the two operations. But, it will probably take
the opportunity now that Nabucco is out of the game to push its own
realistic, cheap and flexible project.
In fact, Statoil and TAP may well be the thinking man's horse in the
race. BP may have come back strong in Azerbaijan, but in the years
that it was focused on its Russian investments it had to deemphasize
its Caspian presence so as not to be perceived as competing with
Moscow's Gazprom in the region. In the meantime, Statoil filled the
void and has now emerged as the player with the most influence with
the Azerbaijani government. This is of paramount importance, because
now that the four pipeline projects have submitted their proposals,
the decision lies with the holders of the gas. And, while BP and
Statoil may be majority shareholders in Shah Deniz, the nature of gas
development in Azerbaijan means that the government in Baku will have
the final say.
Alexandros Petersen is Advisor to the European Energy Security
Initiative at the Woodrow Wilson International Center for Scholars.
This post first appeared in Oil and Gas Journal.
.This entry was posted on November 17, 2011, 7:59 pm and is filed
under EU. You can follow any responses to this entry through RSS 2.0.
You can leave a response, or trackback from your own site.
From: A. Papazian
http://blogs.euobserver.com/petersen/2011/11/17/nabucco-is-dead/
Nabucco is dead. BP killed it. The epic 5-country natural gas pipeline
that was to bring Caspian resources to Central Europe to lessen EU
dependence on Russian supplies was scuppered in late September by the
very same supermajor that was supposed to supply it with gas from
Azerbaijan. As an October 1 deadline approached for Nabucco and its
smaller competitors to submit their commercial transit and tariff
terms to Azerbaijan's Shah Deniz consortium - one of the holders of
the gas - BP, with a 25.5% stake in Shah Deniz, proposed its own
alternative project: the South East Europe Pipeline (SEEP).
Essentially a portion of Nabucco, it is smaller, cheaper and more
realistic than its operatic alternative. And it's got a gas-holding
supermajor behind it. Most importantly, while Nabucco at around 30
billion cubic meters (bcm) a year was a project with three times the
capacity of natural gas immediately available from Shah Deniz, SEEP's
capacity hovers around 10 bcm - just enough to realize the task at
hand. BP representatives have also discussed the possibility for that
capacity to expand in the future, should more gas - from Azerbaijan's
newly confirmed Absheron field or from Turkmenistan across the Caspian
- become available. On the face of it, SEEP provides less risk
up-front and flexibility in the long run.
In some ways, this is welcome news. Although just an idea, Nabucco was
always a white elephant of sorts. It was endorsed by the European
Commission as a strategic project to help solve Europe's energy
security woes, but it put the cart before the horse. Building transit
capacity without available resources to fill it is not the way that
pipelines are built. There were also serious concerns about its cost
(up to 20 billion USD at last estimate) and financing. Even with seed
funds from the European Bank for Reconstruction and Development,
(EBRD) it would have been an enormous challenge to find private sector
investment for a project of this scale in today's economic
environment. Nabucco's consortium, a hodge-podge of national energy
companies along its route and larger players such as Germany's RWE,
never had the clout that even a beleaguered supermajor like BP can
bring to the table. It is perhaps not surprising that Nabucco's
start-date was delayed at least four times over an eight-year period.
All this said, BP's alternative may have killed off a competitor, but
it is far from the ideal project. Ironically, one of Nabucco's
original smaller competitors is closer to fitting the bill. The
Trans-Adriatic Pipeline (TAP) is also a 10 bcm project, but with the
important option of expanding to 20 bcm should gas become available.
It has strong shareholders in Statoil, E.ON Ruhrgas and EGL, so that
it won't have to go begging for investment. The main difference is
that SEEP will terminate in Austria, whereas TAP plans to head to
Italy through Greece and Albania. A notable difference is that TAP has
laid the groundwork with transit countries and regulatory hurdles for
several years, whereas SEEP was just announced.
SEEP may well have legs. With BP's Russian investments foundering, it
has announced that it is doubling down on commitments to develop
Azerbaijani gas and oil reserves. Having its own export pipeline fits
neatly into its new strategy. But, it will face competition from its
Shah Deniz consortium partner Statoil - also with 25.5%. As a major
shareholder in both Shah Deniz and TAP, Statoil claims there are
`Chinese walls' between the two operations. But, it will probably take
the opportunity now that Nabucco is out of the game to push its own
realistic, cheap and flexible project.
In fact, Statoil and TAP may well be the thinking man's horse in the
race. BP may have come back strong in Azerbaijan, but in the years
that it was focused on its Russian investments it had to deemphasize
its Caspian presence so as not to be perceived as competing with
Moscow's Gazprom in the region. In the meantime, Statoil filled the
void and has now emerged as the player with the most influence with
the Azerbaijani government. This is of paramount importance, because
now that the four pipeline projects have submitted their proposals,
the decision lies with the holders of the gas. And, while BP and
Statoil may be majority shareholders in Shah Deniz, the nature of gas
development in Azerbaijan means that the government in Baku will have
the final say.
Alexandros Petersen is Advisor to the European Energy Security
Initiative at the Woodrow Wilson International Center for Scholars.
This post first appeared in Oil and Gas Journal.
.This entry was posted on November 17, 2011, 7:59 pm and is filed
under EU. You can follow any responses to this entry through RSS 2.0.
You can leave a response, or trackback from your own site.
From: A. Papazian