BP Says Adriatic Pipeline Choice for Azeri Gas Driven by Prices

BP Plc (BP/), the lead developer of Azerbaijan’s Shah Deniz natural-gas field, said its decision to send the fuel to Europe through the proposed Trans-Adriatic Pipeline was driven by prices.

The move, which ends four years of competition with the Nabucco pipeline project, was based on “commercial factors, including the cost to get the gas to the market and the market prices,” Al Cook, BP Azerbaijan president for Shah Deniz, said in an interview in Baku, Azerbaijan. “We saw a difference between the two pipelines measuring in billions of dollars.”

Gas prices in Greece and Italy, on the route of the chosen TAP link, exceed those in Bulgaria, Romania and other countries along Nabucco’s proposed course. The Shah Deniz partners, which also include Statoil ASA (STL), Total SA (FP) and State Oil Co. of Azerbaijan, sought the most profitable shipments from the field, which is designed to curb Europe’s reliance on Russian supplies.

Azerbaijan plans to export 10 billion cubic meters of gas a year to the European Union from Shah Deniz. That’s more than double Greece’s annual consumption. The fuel will flow to the Turkish-EU border through the South Caucasus Pipeline and the Trans-Anatolia Pipeline before being fed into TAP.

The decision of BP and its partners ends plans to build the Nabucco pipeline, led by Austria’s OMV AG. (OMV)

“The Nabucco project is over for us,” OMV Chief Executive Officer Gerhard Roiss said this week. The Vienna-based company may eventually build its own pipeline depending on the results of Black Sea exploration off Romania’s coast, he said.

ITGI, SEEP

The winning project also beat the planned Turkey-Greece-Italy Interconnector, or ITGI, and the South East Europe Pipeline, or SEEP, among other transportation options.

TAP’s partners, which include Norway’s Statoil, Switzerland’s Axpo and Germany’s EON SE, are “very strong companies,” and may get a further boost should others purchase stakes, Cook said, adding that BP will complete talks in the coming weeks to acquire its own equity stake in the pipeline.

The Shah Deniz group has already reached agreements in principle with gas buyers in Greece and Italy for the fuel, and those deals will become final in a few weeks, according to Cook.

Greece’s national gas monopoly Depa has made an initial offer to buy 1 billion cubic meters from TAP, Deputy Energy Minister Assimakis Papageorgiou said today in Athens. The Greek Finance Ministry estimates tax revenue of 320 million euros ($418 million) from the pipeline in the first 15 years, he said.

Shah Deniz holds an estimated 1.2 trillion cubic meters of gas. The EU is looking to the field and other deposits in the Caspian region to diversify supply away from Russia, which meets a quarter of its demand.

“Beyond Shah Deniz, we are confident that Azerbaijan’s gas exports will increase dramatically as fields like ACG Deep, Absheron, Umid and Shafaq-Asiman are developed,” said Rovnaq Abdullayev, president of State Oil Co. of Azerbaijan, or Socar. “We see a further increase of exports to Europe both via potential expansion of TAP and through opening up a second route through Bulgaria, Romania and Hungary toward Austria.”

To contact the reporter on this story: Zulfugar Agayev in Baku at zagayev@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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