* Europe, U.S. support for Nabucco weakened
* Azeri consortium expected to pick winner in June
* Gas due to flow to European Union from 2019
By Georgina Prodhan and Barbara Lewis
VIENNA/BRUSSELS, May 28 Europe's grand plan for
a gas pipeline from the Caspian Sea that would make its eastern
states less reliant on Russia may have been fatally undermined
by Russia's even bigger project.
As Azerbaijan nears a decision on which pipeline to choose
for its future exports, the Nabucco plan that was long the
European Union favourite could lose out to the more modest Trans
Adriatic Pipeline (TAP) across Greece to southern Italy.
In a complex equation based on politics as much as
economics, TAP is in the ascendancy over the Nabucco pipeline to
Austria in the face of Russia's $39 billion South Stream plan.
"The question is: 'Is Nabucco viable if South Stream is
built?'" said Andrew Neff, Moscow-based principal energy analyst
with research firm IHS.
The decision between TAP and Nabucco is expected in June
from partners in the Shah Deniz consortium, led by gas field
operator BP and Azeri state energy company Socar.
The European Union won't have a direct say in the choice,
but its recent switch to "project neutrality" from support for
Nabucco could make a big difference. It now says it would be
happy with either pipeline or even both.
"There has been a dramatic shift," TAP's External Affairs
Director Michael Hoffmann told Reuters.
Nabucco spokesman Christian Dolezal, however, said his
project retained strong political support.
Europe's original plan was one 3,900 km (2,400 mile)
pipeline all the way from Azerbaijan, across Turkey and up
through the Balkans. It was named Nabucco after the epic Verdi
opera, with its rousing chorus, that the founding parties had
listened to at the Vienna opera house in 2002.
Although the plan, led by Austria's OMV, was
scaled back to a 1,300 km (800 mile) version linked to a Turkish
pipe, it had kept the favour of both Brussels and Washington.
That was not least because 'Nabucco West' would cross former
eastern bloc countries that depend the most on Russia for energy
- even though initial Azeri gas supplies will account for a mere
2 percent of EU needs.
The TAP pipeline is only 800 km (500 miles), including a
stretch under the sea to southern Italy. Its shareholders are
led by Swiss AXPO and Statoil, which has a
stake in the Azeri gas fields.
The business case for the two appears relatively balanced.
Nabucco would be estimated to cost less than $8 billion with
one Azeri expert reckoning TAP would be $500 million cheaper,
but Nabucco might bring access to more markets.
"Both have advantages and disadvantages," said Gulmira
Rzayeva, a leading research fellow at the Center for Strategic
Studies under the President of the Republic of Azerbaijan.
All of which makes the politics even more important.
Choosing TAP, which does not cut through territory that
Russia traditionally dominated, could be politically expedient
for Azerbaijan, which is broadly aligned with the West but has
no interest in conflict with its former Soviet overlord.
Russia began building South Stream in December and hopes to
deliver gas to Europe well before 2019, when the Azeri gas is
due to start flowing to the European Union..
The Gazprom-led 2,500 km (1,500 mile) South Stream
will cross the Black Sea and then closely follow the line of
Nabucco West. Plans for a southern route that could have
competed with TAP were scrapped, another boost for Nabucco's
Southern European states see benefits for themselves too.
Italy, which relies for gas on politically unstable North
Africa as well as Russia, is keen to diversify supply.
Struggling to recover from its debt crisis, Greece would
welcome the additional revenue from the pipeline. Influential
Germany would be happy with anything that strengthens Greek
finances and reduces potential future bailout costs.
The Trans Adriatic Pipeline would have the side benefit of
forcing greater cooperation between old rivals Greece and
Turkey, EU diplomats said.
Bulgaria and Romania, the poorest European Countries, would
appreciate the infrastructure investments if Nabucco were built.
But their economies do not face the immediate pain that
Greece's does - and a South Stream pipeline through Bulgaria,
Serbia, Hungary and Slovenia would also bring economic benefits
even though it would not break Russia's dominance.
Washington is less concerned about the pipeline supply route
to NATO allies than it was given the change in the global energy
picture as a result of the U.S.-led shale gas boom and the
increasing importance of liquefied natural gas, which can be
shipped by sea.
In fact, the emergence of those alternative gas supplies has
raised debate about whether long pipelines which tie end users
into relatively expensive contracts can be justified by the