US urges Azerbaijan to choose ‘smaller pipeline’

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A smaller, cheaper alternative to the EU-backed Nabucco pipeline could be the best choice to carry Caspian natural gas to Europe, though Nabucco retains US political support, Washington's special envoy for Eurasian energy said in Baku. 

Richard Morningstar, the US envoy, told a news conference in the Azeri capital on 15 November that Nabucco still has Washington's backing but economic concerns – including the potential to scale the pipeline to available gas volumes – should take precedence.

"It's important if Shah Deniz producers and [Azeri state oil company] SOCAR choose a smaller pipeline as the first pipeline," Morningstar said after meeting the Azeri President Ilham Aliyev.

"It will be extendable as more gas becomes available," he added.

Three consortiums are bidding to carry gas to Europe from the second phase of Azerbaijan's giant Shah Deniz field.

They are aiming to secure a new alternative to Russian supplies, seen as prone to political influence and vulnerable to supply interruptions during pricing rows between Russia and transit countries such as Ukraine and Belarus.

Two competing projects – the Trans Adriatic Pipeline (TAP) and Interconnector Turkey-Greece-Italy (ITGI) – would run through Greece and could hit financial obstacles if Greece defaults or exits the eurozone.

The European Union is backing the 31-billion-cubic-metre, 3,000-kilometre Nabucco pipeline, which is designed to tap both Caspian and Middle Eastern suppliers.

But at a cost of €10 billion, Nabucco is "not cheap", EU Energy Commissioner Günther Oettinger said on 4 November.

In the debate surrounding the routes, a darkhorse option has emerged in the form of a pipeline backed by BP, one of SOCAR's partners in Shah Deniz.

The other partner in Shah Deniz is Norway's Statoil, a leader of the TAP consortium.

SOCAR and its partners in Shah Deniz plan to decide on an export route for 10 billion cubic metres of gas per year from Shah Deniz II by the end of this year.

Shah Deniz is believed to hold 1.2 trillion cubic metres of gas, which European companies hope can supply them for decades, reducing their dependence on Russia. Production began in 2006, with the second phase expected in 2017.

Russia is planning its own new southern route to bypass Ukraine, which is already set to see its share of transit volumes fall with the launch last week of the first phase of Nord Stream, an undersea Baltic route that will ultimately carry 55 billion cubic metres per year.

A final investment decision on the South Stream pipeline, which would run along the floor of the Black Sea, was taken earlier this year.

Ukraine, which until the launch of Nord Stream carried 80 % of Russia's transit volumes to Europe, has quarrelled repeatedly over the price of the gas it buys from Russia's Gazprom, leading to supply interruptions to Europe in 2006 and 2009.

The two are seeking a resolution that could put Ukraine's transit pipelines under the joint control of Russia, Ukraine and a European entity, but those talks have yet to bring a result.

The outcome of those talks could influence the need for South Stream and the so-called "southern corridor" options under discussion for Azeri gas.

 

Following the publication of this Reuters article, the US Embassy in Azerbaijan published a press release clarifying Ambassador Morningstar's statements.

"Ambassador Morningstar underscores U.S. support for the Southern Corridor, which will carry Azerbaijani natural gas to Europe, and consist of one or more pipeline projects that are commercially viable and strategically significant.

"Nabucco continues to be a highly desirable political and strategic option. As with any pipeline, it must be commercially viable.

"There will ultimately be large amounts of gas to ship through Georgia and Turkey to Europe. If a smaller pipeline is chosen to ship the first Shah Deniz gas to Europe, we believe it should provide gas to vulnerable countries in Europe and there should be concrete, written guarantees that the pipeline will be expanded as more gas becomes available.

"We will support any pipeline in the Southern Corridor that meets these conditions," the US embassy stated.

 

Several pipeline projects are competing with one another to bring to life the southern gas corridor – a vague blueprint to supply Europe with gas from the Caspian and the Middle East. [more]

As the promoters of the projects have suggested, some of them could pool together their strongest assets and eventually merge. Some smaller projects could become the backbone of bigger projects, when the conditions allow it and if the demand for gas in Europe increases.

In February 2011,EU officials were reportedly pushing for a merger between Nabucco and Interconnector Turkey-Greece -Italy (ITGI), and the European Commission later confirmed that it was encouraging cooperation between projects in the southern corridor.

In an exclusive interview with EURACTIV, Nabucco Managing Director Reinhard Mitschek said he was confident that this project was a "unique selling proposition", because it offers unified transport conditions from the eastern Turkish border to Central Europe. The other projects rely on the Turkish gas pipeline network.

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