BP PLC (BP) is set to invest in two pipeline projects aimed at carrying Caspian natural gas to Europe, in a sign the oil giant is doubling-down on its involvement in the Shah Deniz project despite a projected 25% rise in costs.
U.K.-listed BP leads Shah Deniz 2, a consortium of companies developing a giant gas field in Azerbaijan's chunk of the Caspian basin, a project that the European Union sees as key to its energy security because it will start relieving the bloc's dependence on Russian imports.
BP's moves show it is keen to move quickly to maximize investment and ensure control over the whole length of the project, from wells to end markets. They also suggest a clearer picture of how the so-called Southern Corridor--the gas route from Azerbaijan to Europe--could look.
Al Cook, BP's Shah Deniz development vice-president, told Dow Jones Newswires in an interview that the company is set to soon get a stake in the Trans-Adriatic Pipeline, or TAP, the only project left in the contest that would take the gas to Italy, rather than through central Europe.
Mr. Cook also said that BP is negotiating the acquisition of a stake in the Trans-Anatolian Pipeline, known as TANAP, which would transport the gas across Turkey, and it plans to sign an agreement in the next few months. He said that a plan to build a larger-capacity pipeline through Azerbaijan to the Turkish border is the main cause for a hike in cost estimates, which have risen to $25 billion from a previous forecast of $20 billion.
"BP has completed the negotiation in principle to join the TAP pipeline and to help provide funding in the short term," Mr. Cook told Dow Jones. He declined to specify the size of the stake BP would acquire, but said it will be "substantial."
"We will put our money where our mouth is, we will demonstrate that we are very serious about the success' of TAP, Mr. Cook said, adding a deal should be signed in the next few weeks.
The investment in TAP is part of an effort to gather support around the pipeline, especially in Italy, after the Shah Deniz consortium excluded from the contest the Interconnector Turkey-Greece-Italy that had been backed by the previous Italian government. Mr. Cook said that the decision to invest in TAP was partially motivated by the "changing regulatory and economic outlook" in Italy that is making it easier to invest in the country--a note of optimism about a nation enduring low levels of foreign direct investment.
Italy's state-controlled utility company Enel SpA (ENEL.MI) has also been flirting with TAP; any entry into the project would signal that the country believes in the pipeline.
Mr. Cook's comments suggest that a bigger pipeline from Azerbaijan to Turkey across Georgia could form the first chunk of the Southern Corridor. TANAP would then than carry the gas across Turkey, and TAP would bring it to Italy through Greece and Albania. From Italy, the gas could be sold across Europe.
However Mr. Cook kept his options open, saying that BP's decision to invest in TAP isn't prejudging the final pipeline selection. TAP is one of three remaining contenders in the fight for the European stretch of the Southern Corridor, together with a down-scaled version of Nabucco, called Nabucco West, and the South East Europe Pipeline, or SEEP--a project created by BP--both of which would carry the gas through Central Europe rather than to Italy.
Shah Deniz will decide this week which project it prefers between Nabucco West and SEEP and is expected within a year to decide which route to use for sending Caspian gas to Europe.
The decision to invest in TAP "is more a reflection of the acceleration of TAP" rather than a signal about which pipeline will ultimately be selected, Mr. Cook said. He explained that, given that total investment on Shah Deniz would reach $40 billion, it is worth investing in different projects to keep options open.
--Alexis Flynn in London contributed to this article
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