Final Exam: TAP versus Nabucco West
As the Shah Deniz Consortium appears to be closing in on a final investment decision in 2013, it was announced last week that a decision would be taken by the end of June this year on which Southern Gas Corridor pipeline - the Trans Adriatic Pipeline or Nabucco West - will deliver the initial 10 bcm/year of natural gas production from Azerbaijan's Shah Deniz II gas field to Europe.
In a press briefing at the European Gas Conference in Vienna, Austria, Alasdair Cook, VP Shah Deniz Development, BP, was insistent that he did not know which pipeline project would be chosen, nor which would make the more enticing offer in terms of natural gas price to the Consortium.
"When I tell you I don't know which will provide the best commercial offer, I'm telling you the truth - I genuinely don't. We certainly wouldn't claim today that one project is of a different cost than the other one; we need to see that data come in, and there's every opportunity for one project to come in at a higher cost than the other - we certainly don't know which will be the higher cost," he said, adding that the gas prices used to calculate commerciality would be the prices that gas buyers in the transit corridor countries offered to the Consortium, but that those could vary considerably, raising many question marks.
"I genuinely believe that both pipelines, at this stage, have an equal chance."
The playing field may have been leveled to some extent. Just after the holidays BP, SOCAR and Statoil entered into an agreement the Nabucco project with a 50% stake (an interest of 14% for BP).
"And that builds on a similar agreement to take a 50% stake in the TAP project," explained Mr. Cook, who added, "I should be clear that both of these stakes are options rather than firm stakes, but they're very important because they mean in the short term we start funding these pipelines and in the long term we have the option to join the one that is selected." If exercised, the option would provide BP a 20% interest in TAP.
To help figure out which will prevail, however, Mr. Cook reported that both pipeline projects had been sent decision support packages for them to fill out, for the Consortium parties to be able to assess the TAP versus Nabucco West objectively.
TAP's strengths, according to him, included a diversity of gas markets and political backing through intergovernmental agreements; Nabucco's scalability was mentioned, as well as the full explicit backing of countries along the route. He added that pipeline consideration was not just a function of length, but of compression and diameter.
He said that the Consortium had realized coming into this critical year, a plan to get a level of commercial certainty around each element of the long chain of pipelines and processing lines.
Cook recalled that on 18 December, after a meeting between the president of Azerbaijan and the head of BP, three agreements were signed covering the development of the Shah Deniz II gas field, extending the production sharing agreement until 2036; that gas will be sold through an Azerbaijani company; how they will work together to manage gas transportation contracts. A second set of agreements, he said, related to the South Caucasus pipeline expansion and increasing control for Azerbaijan's SOCAR. The third agreement was about working with the Trans Anatolian Pipeline and BP's 12% stake, according to Mr. Cook.
Now, he said, the phase of gas sales and pipeline selection could go forward, with applications from all potential gas suppliers in Europe having been submitted with the deadline at the end of May.
Admitting the timeline was tight, Cook said the final selection would take place in June when the Consortium would know what gas prices would be as well as the transport terms.
In answer to a query about the possibility of building both TAP and Nabucco West, he said he certainly would not rule that possibility out in the longer term.
Cook said that negotiations had commenced with potential customers dor Shal Deniz gas.
"We're pleased by how they're going," Cook said, saying that initial indications of demand were four times as much as potential supply.
Though encouraged by demand, Cook cautioned that it was still early in the process. "We need to understand how those initial offers translate into firm contracts." he said.
The first gas from Shah Deniz II is scheduled to reach Turkey in 2018 and by early 2019 should reach Europe, said BP's Al Cook.