Energy & Mining

Decision Makers

Caspian Gas to Europe

With the signing of a Memorandum of Understanding (MoU) in early March 2013, Nabucco Gas Pipeline International and the Trans-Anatolian Pipeline (TANAP) have formally decided to work together to develop […]

With the signing of a Memorandum of Understanding (MoU) in early March 2013, Nabucco Gas Pipeline International and the Trans-Anatolian Pipeline (TANAP) have formally decided to work together to develop the Southern Gas Corridor. The MoU highlights the need for the further diversification of natural gas transportation routes to improve the reliability and range of gas supplies to the EU and Southeast European countries. Centered on natural gas resources in the Caspian region, and particularly focused on the Shah Deniz project, the two companies are awaiting the results of landmark decisions in 2013.

Although Nabucco and TANAP will exchange technical and strategic information to support the development of their respective projects, TANAP has yet to discover whether it will be connected to Austria through Nabucco West or Italy through the Trans-Adriatic Pipeline (TAP), a choice that must be made by the Shah Deniz consortium by June 2013. Leading the consortium, the operator of Shah Deniz is BP. “Our decision will be followed by the historic, final investment decision that will allow us to commence the second phase of this giant gas development and export project,” Gordon Birrell, BP Regional President for Azerbaijan, Georgia, and Turkey, told TBY.

According to a deal signed in January 2013, the consortium owns stakes in both the TAP and Nabucco West pipeline projects. Although each project’s feasibility is currently up for debate, analysts suggest that TAP lacks the environmentally friendly features and widespread political support that Nabucco West has achieved.


Backed by both the EU and the US, the Nabucco pipeline project has been on the table since 2002. A decade after Turkish Pipeline Corporation (BOTAÅž) and Austria’s OMV first discussed the possibility of connecting Europe to a second source of energy resources, the proposal was redrafted as Nabucco West in May 2012. If constructed, Nabucco West will transport up to 23 billion cubic meters (bcm) of Caspian gas resources per year along a route of approximately 1,300 kilometers. As a key element of the planned Southern Gas Corridor, Nabucco West is ideally placed to deliver a diversified gas supply to over 500 million potential customers in Eastern and Western Europe.

The potential construction of the Nabucco West pipeline would be carried out exclusively by Nabucco Gas Pipeline International, which has six shareholders: OMV from Austria, MOL from Hungary, Romania’s Transgaz, Bulgargaz from Bulgaria, Turkey’s BOTAÅž, and RWE from Germany.


Should the proposal for Nabucco West fall through, TAP is another viable option. Servicing Greece, Albania, and Italy, and connecting onward to Switzerland and further inland, TAP would extend 800 kilometers and proceed under the Adriatic Sea to transport Caspian gas into Europe. Unlike Nabucco West, the pipeline’s maximum capacity is expected to be 20 bcm after upgrades building upon its initial 10 bcm annually.

If built, TAP will make up the shortest route in the proposed Southern Gas Corridor, at a competitive cost of ‚¬1.5 billion. Shah Deniz consortium member Statoil has demonstrated the most confidence in the project by investing in a 42.5% stake of TAP, along with Swiss Axpo (43.5%) and E.ON Ruhgas from Germany (15%).


Despite its hefty $10 billion price tag, the construction of TANAP is expected to start in 2013. Key motivators on both the Turkish and Azerbaijani sides are eager to launch the project, which was announced in 2011. Designed to transport gas from Shah Deniz II, the pipeline will carry an initial 16 bcm of gas annually, a figure that will be increased to 23 bcm once Shah Deniz II comes onstream in 2018. By 2026, the pipeline will be able to handle 31 bcm on a yearly basis. Once complete, TANAP will play a key role in covering the 4,000-kilometer distance from the Caspian Sea to points in Europe, and feature connection points onward to both Greece and Bulgaria. Initially, about 6 bcm of the gas volume will be allocated to Turkey, while the rest will be transported to Europe.

According to government sources, if the Shah Deniz consortium is able to make a final decision on investment by October 2013, gas will be supplied to TANAP by 2018. From there, Caspian gas will reach European consumers in 2019. The key shareholder of the TANAP project is the State Oil Company of Azerbaijan Republic (SOCAR), which owns 80% of the project. According to Rovnag Abdullayev, President of SOCAR, “the Southern Gas Corridor will be implemented on a stage-by-stage basis, and TANAP will form its backbone.” To collaborate on the construction of this vital section of the Caspian gas route, State-owned BOTAÅž has invested in 20% of the project’s shares.


Following its discovery in 1999, the Shah Deniz gas field rapidly grew in importance to become the country’s largest natural gas reserve. With 8 bcm of gas from Shah Deniz I onstream since December 2006, the development of Phase II of the project is expect to be completed by 2018. The total required investment for Shah Deniz II, including additions and offshore expansion, is estimated to be in the range of $25 billion, including some transportation costs. At maximum capacity, SOCAR expects stage two of the field to produce and deliver an additional 16 bcm of gas per year, bringing the combined output of Shah Deniz up to 24 bcm of gas.

As the field’s main operator, BP has played a particularly significant role in the development of the project and the production of its 1.2 trillion cubic meters of gas. In partnership with BP, “SOCAR has agreed to extend the Shah Deniz production-sharing agreement [PSA] with BP from 2031 to 2036, and the Shah Deniz partners are proceeding with phase II,” Elshad Nassirov, Vice-President of SOCAR said in an interview with the press.

However, BP is not the sole proprietor of Shah Deniz. Shareholders of the Shah Deniz consortium are BP and Statoil with a 25.5% share each; SOCAR, Total SA, Naftiran Intertrade (NIOC), and LukAgip with 10% each; and TPAO with a 9% stake. All of the investors are involved in decision-making processes related to the field. However, SOCAR has shown tremendous support for the field, announcing its intentions to invest $3 billion into the Shah Deniz II project in 2013. Furthermore, the company plans to come to a decision regarding an additional investment of $20 billion by October 2013.

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