LONDON/BRUSSELS Azerbaijan's Shah Deniz II consortium, led by BP (BP.L) and Statoil (STL.OL), selected the Nabucco West pipeline as 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 as the single pipeline option for the potential export of Shah Deniz Stage II gas to Central Europe," 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 selected for a possible southern route, beating off competition from another rival, ITGI.
Next year Shah Deniz II will decide on the entire route for its gas and whether it wants to ship via the southern route through Italy or the northern route via Hungary and Austria.
Nabucco West hailed the decision as a major step towards diversifying Europe's gas supplies away from Russia and boosting security of supply.
"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 Thursday's decision.
"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."
The Commission was long regarded as a supporter of a much grander Nabucco "classic" project to carry gas all the way across Turkey and then into Europe.
The Commission has said that project is still on the table as a route for connecting up to Nabucco West, although industry sources have questioned its commercial viability.
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 natural gas pipeline project (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 it is backed up by robust legal agreements.
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 meters (bcm) a year of gas output to the 9 bcm/year from Shah Deniz I.
The European Union's desire to find alternatives to Russia, which provides around a quarter of its gas supplies, deepened after supply disruptions in 2006 and 2009 because of tension between Russia and transit state Ukraine.
Gazprom (GAZP.MM) also restricted shipments to western Europe in January after exceptional cold weather led to a surge in domestic demand.
TAP, whose partners are Statoil, Swiss EGL EGL.S and Germany's E.ON Ruhrgas (EONGn.DE), says it is well-placed to fulfill all the EU's criteria of ensuring reliable supplies, as well as helping to tackle the financial problems of Greece and Italy, which it would travel through, providing hundreds of jobs.
TAP welcomed Thursday's decision as clearing the way "for the ultimate decision between TAP and Nabucco West".
"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 in a statement.
BP operates the Shah Deniz II gas field, which is thought to contain 1.2 trillion cubic meters of gas, and holds a 25.5 percent stake, as does Statoil (STL.OL). The rest is divided between Azerbaijan's state oil firm SOCAR, Russian LUKOIL (LKOH.MM), NICO, Total (TOTF.PA) and TPAO.
Nabucco's six shareholders are Austria's OMV (OMVV.VI), Germany's RWE (RWEG.DE), Hungary's MOL MOLB.BU through its gas pipeline operator FGSZ, Turkey's Botas, BEH of Bulgaria and Romania's Transgaz ROTGN.BX.
(Editing by William Hardy and Rex Merrifield)