EU moves step closer to non-Russia gas link-up

Fri Sep 28, 2012 9:39am EDT

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* Governments signed MOU on Thursday in New York

* TAP one of two projects short-listed to ship Azeri gas

* Analysts had said TAP's lack of Italian support a weakness

* Nabucco West says has strongest legal framework

By Barbara Lewis

BRUSSELS, Sept 28 (Reuters) - Europe moved a step closer to loosening Russia's grip on European Union energy supplies after Italy, Albania and Greece signed an agreement supporting the construction of a pipeline to deliver gas from Azerbaijan.

At a ceremony in New York on Thursday, the three countries signed a memorandum of understanding bringing the Trans-Adriatic Pipeline (TAP) closer to reality, although building was not likely to commence until 2014 or 2015.

The deal improves TAP's chances against Nabucco West, the other remaining contender in the race to become the first pipeline to deliver Azeri gas to Europe, diversifying the supply. Nabucco West would run from the Turkish border via a northerly gas hub in Austria while TAP would link to Europe via Italy.

TAP's managing director Kjetil Tungland called the agreement "a testament to TAP's commercial and technical strengths" and the European commissioner for energy, Guenther Oettinger, said it represented a significant breakthrough.

"This is another important step towards our aim to get gas directly from the Caspian region," Oettinger said on Friday.

Nabucco West spokesman Christian Dolezal said Nabucco still had "the most advanced legal framework" and therefore remained in a strong position to challenge TAP. "We consider this a benchmark in the Southern Corridor," he said.

BID TO DIVERSIFY SUPPLIES

The Southern Corridor is the Commission's name for whichever project is selected to help wean the continent off its dependence on Russia, which supplies more than 30 percent of all EU gas imports, including nearly 100 percent in six EU states.

Tension between the European Union and Russia over energy has flared repeatedly and worsened since the Commission, the EU's executive, announced this month that it was investigating suspected anti-competitive practices by Gazprom, Russia state-controlled gas monopoly.

In its bid for diversification, the Commission says it does not favour any particular project, insisting that its aim is only to make gas supplies more secure and competitive.

Whether TAP or Nabucco West wins depends on the consortium of companies that operates the Azeri field that will supply the gas, known as Shah Deniz II.

The consortium, led by BP, Statoil, Socar, Total and ENI, is expected to take a decision over the coming months on which of the routes to link up with.

TAP's shareholders are EGL AG of Switzerland (42.5 percent), Norway's Statoil (42.5 percent) and E.ON Ruhrgas of Germany (15 percent).

Analysts have said a weakness of the project is its lack of Italian partners. Some argue a pipeline into Italy would never secure political backing without an Italian company as investor.

For its part, the Italian government is seeking to turn Italy into a southern European gas hub in an effort to reduce energy prices, which are among the highest in Europe and damaging Italian companies at a time of economic crisis.

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.

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