BRUSSELS (Dow Jones)
Shah Deniz, the consortium developing a natural gas field offshore Azerbaijan, has narrowed down its options to carry that gas to Europe, the first major decision in a years-long process that is key for Europe's strategy of diversifying energy supplies.
The consortium has excluded the Interconnector Turkey-Greece-Italy, or ITGI, pipeline project from those being considered to transport the gas to Europe, energy giant BP PLC (BP), which has a key role in Shah Deniz, said Monday. This means that another, similar project called Trans-Adriatic Pipeline will be negotiating exclusively to transit the gas from the Caspian to Italy.
"The SOCAR-led [Azerbaijan's state-controlled energy company] negotiating team has made the decision to undertake exclusive negotiations with TAP on a southern pipeline route through Italy," a spokesman for BP told Dow Jones Newswires. The decision means that ITGI's proposal "will not be considered further," he explained.
The issue of gas transit from the Caspian to Europe is key for the European Union's aim of opening a "corridor" from Central Asia, across Turkey and getting new suppliers in an energy-rich region to ease its dependence on Russia. The news shows that the consortium is making real progress towards a final decision in the process, after years of fierce battle among different pipeline projects.
Two other projects, Nabucco and the South East Europe Pipeline--both designed to carry the gas to Central Europe--are still in the competition, the BP spokesman said.
The consortium's next decision will be to narrow down the other alternatives and decide between Nabucco and SEEP, which is part-supported by BP. "Once that is done, it will be possible to make a decision between a northern [to Central Europe] or southern [to Italy] pipeline route," said the spokesman.
The news is a blow for Italian energy company Edison SpA (EDN.MI) and Greek gas company DEPA, the two sponsors behind ITGI, that have spent huge resources in promoting it.
The financial situation in Greece and Italy, together with technical considerations about the pipelines, were some of the reasons behind the choice, a person familiar with the talks told Dow Jones.
However, Edison reaffirmed its commitment.
"Edison doesn't comment [on the news] since it hasn't received any formal announcement from the Shah Deniz Consortium but it confirms its strong commitment to ITGI's development," a company official said.
ITGI would carry the gas from Greece to southern Italy, bypassing Albania. TAP would do the same, but without bypassing Albania. Its sponsors are Swiss energy-trading company Elektrizitats-Gesellschaft Laufenburg AG (EGL.EB), Germany's E.ON AG (EOAN.XE) and Norway's energy giant Statoil ASA (STO), which is also one of the two main shareholders of the Shah Deniz consortium.
"We firmly believe that TAP remains a strong contender to win the bid to transport Shah Deniz II gas to Europe," said Kjetil Tungland, TAP's managing director, in a statement. "We are also confident that the TAP route to Italy offers the Shah Deniz consortium the most attractive market and the most advanced evacuation route," he explained.
Shah Deniz II is expected to add roughly 16 billion cubic meters of annual production as early as 2018, 10bcm of which would be ready for export to the EU. BP and Statoil both own 25.5% stakes of Shah Deniz. The State Oil Co. of Azerbaijan, or Socar, OAO Lukoil Holdings (LKOH.RS) of Russia, France's Total and National Iranian Oil Company all own 10% each, while Turkey's TPAO owns 9%.
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