Bloomberg News

Socar to Ship Caspian Natural Gas to EU Using Own Pipelines

December 29, 2011

(Updates with analyst comments in the fourth paragraph.)

Dec. 28 (Bloomberg) -- Azerbaijan will build a pipeline across Turkey to deliver natural gas to the European Union’s southern border as it seeks more control over exports.

The Nabucco pipeline, led by Austria’s OMV AG, or smaller- volume transit projects may be selected by the BP Plc-led partners developing the Shah Deniz gas field to carry the gas from the Turkey-EU border, Rovnaq Abdullayev, president of State Oil Co. of Azerbaijan, said in an interview broadcast on the private ANS television channel late yesterday. The company, known as Socar, is also a partner in Shah Deniz.

Turkey and Azerbaijan signed a memorandum of understanding on Dec. 26 to build the Trans-Anatolia pipeline, with a capacity of 16 billion cubic meters a year, to the EU border. The pipeline may cost 7 billion euros ($9.2 billion), according to estimates read to reporters in Ankara, Turkey that day.

“Nabucco is impossible in the medium term because it is a costly project and needs more suppliers than Shah Deniz to be economically viable,” Gulmira Rzayeva, a research fellow at the Center for Strategic Studies under the office of the Azerbaijani president, said by phone.

BP welcomed Azerbaijan and Turkey’s transit and intergovernmental agreements in October as supportive of Shah Deniz’s expansion, Murat LeCompte, BP’s director for external affairs in Turkey, said by e-mail.

Delayed Choice

Shah Deniz 2, estimated to hold 1.2 trillion cubic meters of gas, will have 10 billion cubic meters of the fuel a year available for export to Europe and 6 billion cubic meters for Turkey when it starts producing in 2017.

BP and its partners have delayed selecting a pipeline for its gas exports as Nabucco vies for Azeri supplies with the smaller projects, such as Interconnector Turkey-Greece-Italy and Trans-Adriatic Pipeline. The Shah Deniz partners include Statoil ASA, Total SA, OAO Lukoil, National Iranian Oil Co. and Turkiye Petrolleri AO, as well as BP and Socar.

Nabucco had planned to build a pipeline across Turkey, while the smaller-volume links are looking to take supplies from Turkey’s pipeline system and connect to European networks.

The Shah Deniz partners have begun considering a fourth option, shipping gas to southeastern Europe, and held talks with transportation companies and distributors, LeCompte said.

South-East Pipeline

BP’s South-East Europe proposal is “a very interesting idea” and the cheapest possible route to southeastern Europe, which receives most of its gas from Russia, the Center for Strategic Studies’ Rzayeva said.

Trans-Anatolia may offer Nabucco a boost, as the EU-backed link’s biggest costs and challenges would otherwise arise east of the Bosporus, Johannes Benigni, chairman of JBC Energy GmbH in Vienna, said in a telephone interview.

“If they only have to build the pipeline on EU territory, it would simplify Nabucco tremendously,” Benigni said. “If Socar wants to have more participation in the pipeline, this is one way to invest money and increase their political leverage.”

OAO Gazprom, the world’s biggest gas producer and Russia’s gas export monopoly, plans to build South Stream, a competing pipeline that may transport as much as 63 billion cubic meters of gas under the Black Sea to southern and central Europe. Turkey today gave Gazprom permission to build through its waters.

Step to Nabucco

RWE AG, Germany’s second-largest utility and a shareholder in Nabucco Gas Pipeline International GmbH, said Trans-Anatolia may solve some of the “issues” stakeholders had with the initial plan.

“We believe that this a possible step to implement the Nabucco concept,” Barbara Minderjahn, an RWE spokeswoman, said by e-mail. A statement will be made after the Nabucco stakeholders analyze the move, she said.

Trans-Anatolia may complement the link, said Christian Dolezal, a Nabucco spokesman said. “We are open to cooperation,” Dolezal said by e-mail today. “Everyone is sharing the same aim and this is bringing new gas to Turkish and European consumers in the most efficient way.”

Trans-Anatolia won’t replace the other projects, Philipp Chladek, an energy analyst for Bloomberg Industries, said in a telephone interview today.

“Shah Deniz needs an economically viable transport option to the unregulated markets in central Europe, otherwise it won’t make sense economically,” Chladek said. “It doesn’t help Shah Deniz to have a pipeline which ends on the Turkish border to Bulgaria.”

--With assistance from Boris Groendahl in Vienna, Ercan Ersoy in Istanbul, Jake Rudnitsky and Stephen Bierman in Moscow and Stefan Nicola in Berlin. Editors: Torrey Clark, Rob Verdonck

To contact the reporter on this story: Zulfugar Agayev in Baku at

To contact the editor responsible for this story: Hellmuth Tromm at

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