Farhad Mammadov about advantages and disadvantages of TAP and Nabucco West

"In approximately 6-12 months the Shah-Deniz (SD) consortium will make a strategic decision of historic significance concerning the selection of the main export pipeline whose construction will inaugurate Europe's Southern Gas Corridor strategy," Farhad Mammadov, Director of the Centre for Strategic Studies of Azerbaijan, said yesterday in his speech at the international conference in Baku devoted to NATO's role in the energy safety.

The selected evacuation route must be the most commercially viable and the selected market should be able to offer to the sellers long-term security of demand for a period of at least 20-25 years.

Mammadov said that he two final pipeline projects - Nabucco West and Trans-Adriatic Pipeline (TAP) - under consideration by the SD shareholders

Mammadov spoke about advantages and disadvantages of the both routes. The advantages of Nabucco West are the following: higher gas price in the Balkan component of the market as a result of the complete reliance on only one gas supplier;

If the planned and EU supported interconnectors are completed between the countries along the Nabucco West route (Bulgaria, Romania, Hungary, Austria) and the Western Balkans (Serbia, Croatia, B/H) they would have an additional asset and strength. Balkan countries may be small markets if viewed separately. Yet in combination they could guarantee a solid market for the first 10 bcm/y of SD gas.

The specific importance for the SD consortium would be the guarantee of access to the German market.

The disadvantages of the Nabucco West are:

The markets along the route are small and gas import volume is limited. It is very difficult to foresee the entire Balkan markets to be able to absorb more than 10 bcm/y of new gas supplies beyond 2020. Moreover as more interconnectors are built and new sources of supply arrive in the Balkans from Arab or East Med sources the final net back price for the sellers will eventually diminish.

Furthermore, the new discoveries on the Romanian coast of Black Sea would put some risks on the ability of the market to absorb imported gas. For the SD consortium it is preferable to leave substantial volume of gas in those countries rather than in the Austrian hub as it would give SOCAR an opportunity to get a direct access to the gas buyer companies and end users.

If Nabucco West would have to apply for Third Party Exemption again due to the reconfigured technical features of the project, it would take at least another year to obtain it.

As far as advantages of TAP are concerned, Mammadov said they are the following:

The gas price on the Italian hub is 20% higher than in Western Europe and around 5% higher (depending on seasonal fluctuations) than Baumgartner.

Solid financial capability. It is still unclear whether Nabucco's finances would make sense in the long-term as TAP's shareholders' composition changes to include major global, European and regional players that would only increase the pipeline's commerciality.

TAP recently signed two Memoranda of Understanding and Cooperation with the Croatian and Bosnian system operators, Plinacro and BH-Gas, who both promote the Ionian Adriatic Pipeline (IAP). Starting at a tie-in point to TAP in Albania, the IAP aims to deliver gas to Albania, Montenegro, Bosnia and Herzegovina, and Croatia. In effect -if materialized -TAP would be able to guarantee the access of Azerbaijani gas to the Western Balkans as well. TAP has also signed respective MoU with Montenegro and Slovenia.

However, reduction of gas consumption in Italy as a result of the financial crisis, perspectives of deliveries of liquefied gas from the other regions could reduce prices at the Italian market.

In conclusion Mammadov said that if making of the decision by the Shah-Deniz consortium is delayed, Iraqi, Qatari, North African or East Mediterranean gas will "intervene" and capture the markets which SD might target.-0--