June 28, 2013 / 7:42 AM / 4 years ago

UPDATE 2-Azeris say Austria could get future gas supplies

* Nabucco could get future Azeri gas supply - SOCAR

* Shah Deniz formally selects TAP pipeline to Italy

* Spot pricing could be advantage over Russian gas

By Lada Evgrashina

BAKU, June 28 (Reuters) - Central Europe could get future supplies of Azeri natural gas, energy company SOCAR said on Friday, after passing over the region in favour of a project that will pipe Azerbaijan’s first European deliveries to Italy.

Capping more than a decade of planning, SOCAR and partners including BP and Statoil formally selected the Trans Adriatic Pipeline (TAP) on Friday.

TAP plans to deliver 10 billion cubic metres of Azeri gas to Europe each year beginning in 2019, linking a Turkish pipeline to southern Italy via Greece and Albania.

It will tap Azerbaijan’s vast Shah Deniz II project in the Caspian Sea, one of the world’s largest gas fields with an expected investment of more than $40 billion including pipelines, and help Europe reduce its reliance on Russian gas.

The decision meant defeat for the rival Nabucco West project which had hoped to build a central European pipeline to Austria via Bulgaria, Romania and Hungary.

Yet SOCAR noted Azerbaijan’s gas exports will increase dramatically after the development of additional fields such as ACG Deep, Absheron, Umid and Shafag-Asiman.

“We clearly see the Nabucco pipeline corridor as the natural market for our future volumes of gas,” Rovnag Abdullayev, president of SOCAR, told a news conference.

“We expect that the ability of the southern corridor to bring new sources of supply to European markets will extend beyond the immediate areas transitted by TAP,” he said.

The European Commission also saw scope for central European deliveries in the future.

“In principle, gas from the Caspian Sea could be delivered to the EU both to Baumgarten/Vienna (Nabucco West) or to Italy (TAP),” the Commission said in a statement.

Regarding the selection of TAP, Shah Deniz consortium member BP said there was a “substantial” commercial difference between the two competing pipeline projects, including the cost of shipping the Azeri gas and gas prices in the respective markets.

Analysts at consultancy Wood Mackenzie said Azeri gas contracts could include a high proportion of spot-indexation rather than deals linked to oil prices.

Offering contracts largely based on spot gas prices would give Azerbaijan an advantage over supply from Russia’s Gazprom , whose contracts linked to oil prices have caused friction with some European gas buyers.


TAP shareholders are Statoil, Swiss company AXPO and Germany’s E.ON Ruhrgas. Nabucco West is led by Austrian energy company OMV.

OMV reiterated comments made earlier this week that it considered the Nabucco project over.

The Nabucco consortium said its shareholders would decide on its next steps in the coming weeks, and OMV said it might turn its attention to gas for Europe from the Black Sea.

The TAP decision prompted a flurry of potential partners to come forward.

Belgium’s Fluxys is expected to join the group by August, TAP managing director Kjetil Tungland said, while Shah Deniz members SOCAR, BP and France’s Total said they would take stakes in the pipeline project by the end of the year.

Transit countries Turkey and Greece also said they were assessing options to join the project.

Greece’s DEPA has made an offer to buy 1 billion cubic metres of the Azeri supply, the Greek deputy energy minister said.

In response to Europe’s quest for Caspian supply, Russia’s Gazprom has put forth its $39 billion South Stream project which would pipe gas to northeast Italy via the Black Sea.

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