May 29, 2008 / 11:07 AM / 11 years ago

UPDATE 3-Nabucco pipeline cost rises to 7.9 bln euros

(Adds Bulgaria energy minister comment, background)

By Christian Gutlederer

VIENNA, May 29 (Reuters) - The expected cost of the EU-backed Nabucco pipeline to bring Caspian gas to Europe has soared to 7.9 billion euros ($12.3 billion) from 4.6 billion, the consortium planning to build and run it said on Thursday.

In a statement the Austrian-based Nabucco Gaspipeline International company said the cost rise mainly reflected accelerating material and service prices.

The European Union, which has embraced Nabucco to ease its dependence on Russian gas, and some of the pipeline partners confirmed their commitment to the project, despite the steep rise in costs.

Managing Director Reinhard Mitschek said the previous sum had been estimated after a feasibility study in 2005.

“Since then, crude oil prices have more than doubled, which consequently has also led to higher prices for all primary energy sources, also prices for steel,” he said.

Steel companies were also capitalising on high demand for a large number of big infrastructure projects, Mitschek said.

He said the competitiveness and economics of the project, aimed at pumping 31 billion cubic metres of gas via Turkey and the Balkans from 2013, would not be affected because high energy prices meant Nabucco was needed and its transport earnings would be highly profitable.

The costs of a Russian backed South Stream gas project, viewed by Brussels as a rival to the Nabucco, has been seen at over 10 billion euros.

Analysts say costs in the industry will likely keep rising on the back of soaring raw materials, forcing some companies to abandon certain projects.


In Brussels, European Energy Commissioner Andris Piebalgs said the Nabucco cost overrun did not change the EU executive’s enthusiasm for the project.

“We haven’t changed our policy. It is important for Europe,” he told Reuters when asked about the new estimate.

Bulgaria and German utility RWE AG (RWEG.DE) — two of the Nabucco partners — also confirmed their commitment.

“Our government has the political will for a quick realisation of the project provided the necessary gas supplies are secured,” Bulgaria’s Economy and Energy Minister Petar Dimitrov told Reuters in a written response.

An RWE spokesman said: “The higher costs do not change our commitment to Nabucco. The pipeline is an important cornerstone of European gas supply.”

The project faces a number of serious challenges — securing supplies, with only Azerbaijan committed, Russia’s South Stream rival route and U.S. hostility to sourcing Iranian gas, although Washington backs the project.

The pipeline will be one-third financed by the owners and two-thirds by banks.

The consortium is made up of Austria’s OMV OMVV.VIE, RWE, Hungary’s MOL (MOLB.BU), Turkey’s Botas, Bulgaria’s Bulgargaz and Romania’s Transgaz TGN_r.BX.

Mitschek said separately he expected a decision about the construction in the first few months of 2009 and the start of work in 2010.

The 3,300 km pipeline project requires 2 million tonnes of steel, 200,000 pipes and more than 30 compressor units.

The statement also said the group would start sounding out potential shippers from mid-June in a so-called open season process. The pipeline owners have reserved half the capacity for themselves. (Additional reporting by Vera Eckert, Tom Kaeckenhoff, Paul Taylor and Anna Mudeva; Editing by David Holmes)

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