UPDATE 3-Shah Deniz partners back Nabucco West pipeline-BP

Thu Jun 28, 2012 4:22pm EDT

Related Topics

* Two pipeline projects left in the race

* Decision on full route not expected until next year

* TAP contends for southern route; Nabucco West for northern

* Energy Commissioner welcomes step closer to more security (Adds SOCAR statement)

By Oleg Vukmanovic and Barbara Lewis

LONDON/BRUSSELS, June 28 (Reuters) - Azerbaijan's Shah Deniz II consortium, led by BP Plc and Statoil, selected the Nabucco West pipeline for one of two possible routes to carry Caspian gas to western Europe, BP said on Thursday.

The decision is part of a long process of elimination to choose a new pipeline to break Russia's dominance of the European Union natural gas market.

"The Nabucco West project, with a route running from the Turkish-Bulgarian border to Baumgarten (in Austria), has been selected," BP said in a statement.

"Development of the South East Europe Pipeline (SEEP) project (led by BP), which had been assembled by Shah Deniz partners in collaboration with Bulgaria, Romania and Hungary, will cease," it added.

Graphic of Nabucco: link.reuters.com/kep53s

In February, the Trans-Adriatic Pipeline (TAP) was picked for a possible southern route, beating off competition from another rival, ITGI.

Next year, Shah Deniz II is expected to decide on the entire route for its gas and whether it wants the last stage of the journey to take a southern route through Italy or a more northern route into Austria.

Nabucco West hailed Thursday's decision as progress towards diversifying Europe's gas supplies and making them more secure.

"This decision is an important milestone for the Nabucco project and a major step towards the final investment decision," Reinhard Mitschek, managing director of Nabucco Gas Pipeline International said in a statement.

EU Energy Commissioner Guenther Oettinger also welcomed the news.

"With this pre-selection, we are a step closer to getting gas directly from Azerbaijan and other countries in the Caspian region. Whatever the final decision on the whole route from the eastern part of Turkey to Europe, Azerbaijani gas is certain to come to Europe," Oettinger said in a statement.

"This is a success for Europe and for our security of supply."

NABUCCO CLASSIC

The Commission was long regarded as a supporter of a grander Nabucco "classic" project to carry gas all the way across Turkey and then into Europe.

The Commission has said that project is still under consideration as a route for connecting up to the shorter Nabucco West, although industry sources have questioned the commercial viability of the larger project.

Thursday's announcement follows an inter-governmental agreement between Turkey and Azerbaijan on Tuesday, providing a vital connection in the form of the $7 billion Trans-Anatolian pipeline (TANAP), planned to carry Azeri natural gas across Turkey to the edge of Europe.

In any event, the Commission says it is neutral on which pipeline should win, provided it helps to diversify Europe's gas suppliers, that the winning project can be scaled up according to demand and that robust legal agreements underpin it.

Azeri gas fields are the most developed new non-Russian sources of natural gas that can be pumped to the European Union through pipelines.

The Shah Deniz II partners said they will work with the developers of Nabucco West and TAP to ensure the projects can be developed and delivered before production from the second phase of Shah Deniz comes onstream in 2017, BP said.

Shah Deniz II is set to add a further 16 billion cubic metres (bcm) a year to the 9 bcm/year from Shah Deniz I.

The European Union's desire to find alternative suppliers to Russia, which provides around a quarter of its gas, deepened after supply disruptions in 2006 and 2009 because of tension between Russia and transit state Ukraine.

Gazprom also restricted shipments to western Europe in January after exceptionally cold weather led to a surge in domestic demand.

TAP, whose partners are Statoil, Swiss EGL and Germany's E.ON Ruhrgas, says it is well-placed to fulfil the EU's criteria of ensuring reliable supplies. It said it could also ease the financial problems of Greece and Italy - nations it would travel through, providing hundreds of jobs.

"We believe that its clear economic, commercial, technical and strategic advantages make TAP the strongest contender in this competition and the best option for both Europe and Azerbaijan," TAP Managing Director Kjetil Tungland said.

BP operates the Shah Deniz II gas field, which is thought to contain 1.2 trillion cubic metres of gas and holds a 25.5 percent stake, as does Statoil. The rest is divided between Azerbaijan state oil company SOCAR, Russian LUKOIL , NICO, Total SA and TPAO.

Elshad Nassirov, vice-president of SOCAR, said in a statement that neither of the two remaining options from Turkey was "the preferred option." Both would be assessed on commercial, financial and reliability criteria, as well as on the support of host governments.

He added the final decision was expected for June next year, but SOCAR would try to decide earlier if possible.

Nabucco's six shareholders are Austria's OMV AG, Germany's RWE AG, Hungary's MOL through its gas pipeline operator FGSZ, Turkey's Botas, BEH of Bulgaria and Romania's Transgaz. (Editing by William Hardy, Rex Merrifield and Andre Grenon)

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