BP sees pipeline rivals equal in Azeri gas race

VIENNA Thu Jan 31, 2013 1:55pm GMT

BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012. REUTERS/Alexander Demianchuk

BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012.

Credit: Reuters/Alexander Demianchuk

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VIENNA (Reuters) - The two consortiums competing to pipe Azerbaijan's Caspian Sea gas into Western European markets still have an equal chance of success, the Shah Deniz gas field operator BP (BP.L) said on Thursday.

The Shah Deniz consortium is expected to choose by mid-2013 whether to pipe gas from the Shah Deniz development into Austria through the proposed Nabucco West pipeline or into Italy through the rival Trans-Adriatic Pipeline (TAP) project.

"I genuinely believe both pipelines at the moment have an equal chance," said Al Cook, who is in charge of BP's Azeri operations. "There's certainly no clear-cut answer at the moment," he told reporters at a conference in Vienna.

BP is aiming for first gas from Shah Deniz II to be delivered to existing customer Turkey in 2018 with early 2019 set for the first Azeri gas to reach western Europe in a major development that will reduce European dependence on Russia for its energy supplies.

The selected pipeline will bring billions of dollars in investments for the countries through which it travels - Bulgaria, Romania, Hungary and Austria in the case of Nabucco, and Greece, Albania and Italy if TAP wins the contest.

The Trans-Anatolian gas pipeline (TANAP) will bring the Azeri gas through Turkey to the edge of Europe to connect either with Nabucco West or TAP.

Shah Deniz, Azerbaijan's biggest gas field, is being developed by consortium partners BP, Statoil (STL.OL), Azeri state energy firm SOCAR, Total (TOTF.PA) and others and is estimated to contain 1.2 trillion cubic metres of gas.

Shah Deniz I has been pumping gas since 2006.

After a deal signed earlier this month, the Shah Deniz consortium owns equity options in both pipeline projects.

Cook said BP had sent out questionnaires on Wednesday to Nabucco and TAP, asking them identical questions about their respective projects, to which it expects answers soon, enabling it to make a decision by the end of June.

The criteria include profitability, engineering quality, safety and environmental provisions, the political commitment of the governments involved, quality of personnel and potential for future expansion, Cook said.

"Fundamental amongst them is obviously the commerciality," he said, adding that the customer supply contracts that each of the rivals could achieve would be a major factor.

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Socar began negotiations last week with potential gas customers in European end markets.

"We're pleased by how they're going," Cook said, saying that early indications of demand were four times as much as potential supply, although he cautioned that it was still early.

"We need to understand how those initial offers translate into firm contracts." he said.

Cook did not rule out that both Nabucco West and TAP could be built in the long term.

Asked whether BP felt any political pressure to select TAP, with its promise of inward investment for crisis-struck Greece and Italy, Cook said any such pressure was "not obvious".

"We certainly know that it's a consideration for others," he said. "If that turns into great support for doing the projects, then that's wonderful. But we try to make sure that we make the comparison as objective as possible."

In addition to the Shah Deniz consortium, which has a 50 percent equity option on both projects, TAP's shareholders are Swiss group Axpo Holding AXPOH.UL, which has 42.5 percent, Statoil (42.5 percent) and E.ON Ruhrgas (EONGn.DE) (15 percent).

Nabucco's other six shareholders are Austria's OMV (OMVV.VI), RWE (RWEG.DE), Hungary's MOL MOLB.BU, Turkey's Botas, BEH of Bulgaria and Romania's Transgaz ROTGN.BX.

BP's own equity options, which are part of the Shah Deniz stakes, are 20 percent in TAP and 14 percent in Nabucco.

The shareholdings in Nabucco in particular are still fluid, and critics say delays, possible cost overshoots and rival pipelines make the Nabucco project increasingly unattractive.

RWE is in talks to sell its Nabucco stake to OMV, while Germany's Bayerngas, which had been planning to join the consortium, said on Monday it had abandoned such plans and was shifting its focus to its home market.

Cook said he was not unduly worried about some changes among the shareholders. "Obviously, we want to understand the governance structure of Nabucco," he said. "On the other hand, we weren't overly concerned about RWE."

He added that BP was not actively seeking to increase its stake in either project.

(Editing by Greg Mahlich)

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