UPDATE 3-Nabucco pipeline boosts prospects with Azeri deal

Thu Jan 10, 2013 12:36pm EST

* Shah Deniz group would get 50 pct stake

* Funding deal breathes life into downsized Nabucco West

* Rival TAP pipeline has signed similar funding deal

By Tsvetelia Tsolova and Henning Gloystein

SOFIA/LONDON, Jan 10 (Reuters) - Azerbaijan's Shah Deniz gas group has agreed a deal that could see it take a stake in the Nabucco pipeline to transport the country's gas to Europe, boosting the project's chances against a rival plan.

The Shah Deniz 2 consortium, which has already signed a funding deal with the competing Trans-Adriatic pipeline (TAP) project, has said taking a stake in Nabucco would be critical for the project to go ahead.

The companies behind the Nabucco pipeline said on Thursday the deal, announced in Sofia and to be finalised in Vienna, would give Shah Deniz 2 a 50 percent stake if it chooses their project as its European export route, in return for joint funding and development of the pipeline.

"With real upstream people as partners, we move in the direction of developing more than just something on a paper, but into direction of a real pipeline," said Gerhard Roiss, chief executive of Austria's OMV, a shareholder in Nabucco.

Rival TAP plans to pipe Azeri gas to Italy while Nabucco would transport Caspian supplies to Europe via Austria.

The European Union supports the delivery of Azeri gas to the region, expected to start in 2018, regardless of which pipeline is chosen, to reduce its dependency on Russian gas imports.

Analysts said the deal did not come as a surprise and the Shah Deniz 2 group, whose shareholders include Azerbaijan state energy firm SOCAR, was trying to boost its bargaining power ahead of making a decision over which pipeline to choose.

"This move (was) anticipated after the decision of funding TAP. Shah Deniz 2 partners are making sure they have got some sort of control over the midstream development, and doing this before a final decision on which pipeline will go ahead provides them more leverage," said Massimo Di-Odoardo, senior gas analyst at energy consultancy Wood Mackenzie.

The Shah Deniz 2 group, which is developing the biggest gas field in the Caspian Sea region, has narrowed its options over which route to take for its gas to Europe down to either a scaled down Nabucco project, known as Nabucco West, or to TAP.

Several other pipeline projects, such as the Interconnector Turkey-Greece-Italy (ITGI) or the South East Europe Pipeline (SEEP), have been dropped from the competition.

DOWNSIZED NABUCCO

The Nabucco gas pipeline project was initially designed to transport an annual capacity of 32 billion cubic metres (bcm) a year of Azeri and other central Asian gas through Turkey and southeastern Europe into Austria.

But its high costs and a lack of gas suppliers beyond the 16 bcm Shah Deniz 2 consortium led to the project being downsized last year.

The downsized Nabucco West project aims to ship 16 bcm of gas a year from the Turkish border to Austria, leaving the transit through Turkey to the joint Azeri-Turkish TANAP pipeline.

Should new gas reserves become available in future, Nabucco West is designed to be scaled back up to 32 bcm, which analysts say gives it a competitive edge over TAP which, although also with an option to be grown, would not be able to carry 32 bcm.

"SOCAR's interest is about making sure that the (pipeline) investments pave the way for future Azeri gas developments. In this respect Nabucco West, given its scalability, clearly represents the most attractive option for them," said WoodMac's Di-Odoardo.

Other Nabucco shareholders include Hungary's MOL through its gas pipeline operator FGSZ, Turkey's Botas, Romania's Transgaz, Bulgaria's BEH and Germany's RWE , all holding 16.7 percent stakes.

RWE said last year it would sell its stake, and Roiss said OMV would buy RWE's share in Nabucco to safeguard the project.

BP holds a 25.5 percent stake in the Shah Deniz consortium, as does Norway's Statoil. Other shareholders include France's Total as well as SOCAR.

TAP is being developed by Statoil, Swiss EGL and Germany's E.ON.