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«Shah Deniz group snub Nabucco gas pipeline in favor of TAP Platts, 26.06.2013 One of the longest-running energy infrastructure sagas in recent ...»

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Oil & Gas Bulletin

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Shah Deniz group snub Nabucco gas

pipeline in favor of TAP

Platts, 26.06.2013

One of the longest-running energy infrastructure sagas in

recent history has finally reached its conclusion after the BP

led consortium that operates the giant Shah Deniz field

offshore Azerbaijan snubbed the Nabucco West pipeline in

favor of the rival Trans Adriatic Pipeline (TAP) as its option of

choice for delivery of its gas to Europe.

OMV the lead partner in Nabucco West broke the news Wednesday, days before a deadline of the end of June imposed by BP and its Shah Deniz partners earlier this year.

“The Nabucco West project was not selected by the consortium,” OMV said in a short statement.

OMV did not add any further details, but Nabucco’s non-selection implies that rival pipeline TAP was chosen by the Shah Deniz group. BP, when contacted by Platt said only it was sticking to the end June timeframe for now, while TAP had no immediate comment. Nabucco and TAP submitted their initial gas transportation offers to the Shah Deniz consortium in April this year. Two other planned pipeline projects had already been rejected by Shah Deniz, leaving just Nabucco and TAP as the options on the table. “While OMV accepts the decision of the consortium, OMV is of the opinion that the offer which was submitted by Nabucco met all the selection criteria and was highly competitive,” it said.

Phase 2 of the Shah Deniz project aims to bring 16 bcm/year to market, of which 6 bcm/year will go to Turkey and 10 bcm/year to Europe. First gas is due in 2018 in Turkey and in Europe in 2019.

Nabucco had originally been intended to source gas from elsewhere in the Caspian region and the Middle East, but with the creation by Azerbaijan and Turkey of the TANAP line across Turkey, the Nabucco partners opted to shorten their route to start at the Bulgaria-Turkey border. Despite that setback, Nabucco was still confident its project was superior to TAP.

The route would have taken Azeri gas through the countries represented by the shareholders, namely Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgarian Energy Holding and Turkey’s BOTAS. OMV earlier this year bought the stake held by Germany’s RWE and had planned to sell on that stake to a new partner. RWE joined in February 2008, but is in talks with OMV on selling its equal stake, uncertain of the economic benefit of being a consortium member. Hungary has also complained about the viability of Nabucco. TAP, whose shareholders are Switzerland’s EGL (42.5%), Norway’s Statoil (42.5%) and Germany’s E.ON Ruhrgas (15%), would take gas from the border with Turkey via Greece and Albania to Italy.

–  –  –

Gazprom said it was ready to supply the same amount of gas to private companies. In August of last year, four Turkish private energy companies shook hands with Gazprom for the delivery of 6 billion cubic meters of natural gas via this pipeline.

Turkey is Gazprom’s second-largest gas consumer. The additional 4 billion cubic meters is not certain yet, as Gazprom said they “need more time to deliberate,” according to Yildiz. The handing over of the Western Pipeline delivery to private firms was welcomed by some analysts who argued that private firms would be able to negotiate better terms and thus provide gas at lower prices.

Some other parties alleged that the government was turning the pipeline deal over to private companies that are politically affiliated or close to the ruling party.

Turkey still needs the Western Pipeline since its infrastructure is not yet capable of bringing natural gas from eastern Turkey to the western side. Turkey currently has natural gas purchase deals with Russia, Iran and Azerbaijan, as well as liquefied natural gas (LNG) deals with Nigeria and Algeria.

Turkey's plans for the future include buying natural gas from Turkmenistan, Iraq and Egypt.

Meanwhile, Yildiz said the government expects to enlarge its natural gas storage with new foreign investments. “We have met certain foreign firms for planned projects in this regard. There is growing interest here,” he explained. Turkey plans to store natural gas from supplier countries until it can become a supply center for energy-hungry Europe via diversified channels.

–  –  –

However, the number adequacy applications made in the last period for Sinop, Mardin, Igdir, Bitlis, Bingöl, Mus, Artvin, Hakkari, Agri, Sirnak and Tunceli, where natural is not used, have been very low. No companies have made adequacy applications in Hakkari, Agri, Sirnak and Tunceli, while just one company each has made an application in Bitlis, Bingöl, Mus and Artvin, and Sinop, Mardin and Igdir have neared the tender process by receiving more than one application each. The decision of the EMRA on the four cities where there have been no adequacy applications, and the cities where there have been only one application is expected to be made and announced to the public by the end of June. Previously, the EMRA had cancelled tenders which were not entered by more than one company due to a lack of competition.

–  –  –

Turkey and Turkmenistan revived hopes for a long-term plan with regards to the delivery of Turkmen gas to Turkey after signing a cooperation agreement during President Abdullah Gül’s highlevel official visit to the country in early June. “The more this issue is taken seriously, the more the talks with Iran can gain importance. Iran has several natural gas pipeline networks that compensate for the energy needs of its neighbors,” Bikdeli added. Bikdeli also opposed the Baku-Tbilisi-Ceyhan pipeline when he was an ambassador in Baku in 1997, arguing that the cheapest and shortest route for the pipeline is through Iran from the Persian Gulf. “We have the necessary infrastructure,” Bikdeli said at that time. “They would only need to build 200 kilometers of new lines.”

–  –  –

The pipeline had been halted since Friday because of a leak, without specifying further details. Iraq normally exports an average of 300,000 to 350,000 barrels a day but sabotage against the pipeline over the last few months, has reduced the flow. Last month, Iraq exported 273,000 barrels a day via the pipeline due to damage to the pipeline by unknown attackers. Iraq’s crude oil exports in May were down 5.4% to 2.48 million barrels a day from April’s 2.622 million due to bad weather in the southern oil terminals in the Gulf and attacks on the northern oil export pipeline to Turkey, the Iraqi oil ministry said in a statement Sunday.

–  –  –

Turkish Energy Minister Taner Yildiz said in April that they wanted to raise the private sector’s rate in the energy sector to 75 percent in the medium term. As part of the government’s target, it aims to establish a free energy market in Turkey under the supervision of the public sector.

Celepci recalled the statement in April of Stefan Füle, the European commissioner for enlargement and European neighborhood policy, which said the European Commission, thought that Turkey was ready to start negotiations on the energy chapter. “This statement is important as well as late.

Because Turkey has made its preparations in order to answer the expectations. Turkey positioned itself as an important energy bridge between East and West and built its strategy in this way,” said Celepci. Turkey ‘main route’ of energy transfer However, Celepci said opening the energy chapter with Turkey would be an important step for the EU during a period in which the countries had been discussing how to transfer energy resources from Caspian Sea, Iraq and the eastern Mediterranean to Europe.

Turkey has become the main export route of the energy resources of the Caspian, Iraq and the eastern Mediterranean, Efgan Niftiyev, an expert at the Caspian Strategy Institute (HASEN). Niftiyev added that as the EU eyed diversifying suppliers and the routes in natural gas imports in the framework of the 2020 vision, the energy resources that would come through Turkey were vital for the union. Also, Celepci stressed that the future targets in energy of both sides were similar. While the EU aims to have an installed power capacity of which 20 percent will be made up of renewable energy by 2020, Turkey aims to raise its renewable energy capacity to 30 percent by 2023.

–  –  –

Greek Cyprus discovered an average 7 trillion cubic feet of natural gas in Dec. 2011 in one field offshore, close to where Israel reported major finds within its own maritime boundaries. Companies expected to end talks by end of year U.S. company Noble Energy and Israeli companies Delek Drilling and Avner Oil Exploration, which are the dominant players in both the Greek Cypriot and Israeli projects, will over the next six months discuss the technical and commercial details of any eventual deal on an LNG terminal. The sides hope to conclude talks by Dec. 31.

Noble launched an appraisal drilling on its Greek Cypriot offshore find last month, while Total and ENI are poised to launch exploratory drills elsewhere off Greek Cyprus by 2015. Facing an unprecedented austerity-driven recession and record unemployment at 15.6 percent, the island is clinging to the hope gas discoveries will bring in badly needed revenue and create jobs. Greek Cyprus received a 10 billion euro ($13 billion) international bailout in March.

Lakkotrypis said there were “multiple ways” to finance the LNG project, including with equity or debt, but declined to go into further detail. Greek Cyprus is marketing the venture to Israel which has also reported natural gas finds, and to Lebanon. Israel’s government decided on June 23 that it could export about 40 percent of its newly-discovered reserves. Gideon Tadmor, Avner’s CEO and chairman of Delek, said the idea of using the Greek Cypriot LNG terminal to process Israeli gas should be explored. “It is a possibility and opportunity we intend to investigate,” he told reporters.

Israel’s government decided on Sunday that it could export about 40 percent of its newly-discovered reserves.

–  –  –

“The European Union will include the East Med Pipeline in the revised list of projects of common interest within the Southern Corridor for gas,” George Shammas, chairman of the Greek Cyprus Energy Regulatory Authority, said on June 21. Greek Cyprus Energy Minister George Lakkotrypis also said he had information the European Union would include the pipeline, although adding that Greek Cyprus had to study the feasibility of the link.

The Southern Corridor is the EU name for routes to ship gas from central Asia, the Middle East and the Eastern Mediterranean basin to diversify supplies and reduce dependence on Russian gas. Gas from Azerbaijan’s Shah Deniz II field is expected to become available for export from 2017, while Greek Cyprus has said it could be exporting gas from 2020.

The European Commission has said Greek Cypriot gas could play an important role in diversifying supplies and in improving room for negotiation with Russia, but its development is complicated by the long-standing rift between Greek Cyprus and Turkey. The pipeline would have to pass through disputed waters. A Commission spokeswoman declined to comment.

–  –  –

Nuclear power has been in the headlines recently after the Turkish government announced the signing of an initial deal to develop the country’s second nuclear plant, after the Russian-built plant (still in construction after an agreement signed in 2010) in southern Turkey. A third plant will be constructed later, in line with a government strategy on nuclear power adopted in 2006 which aims to reduce reliance on costly gas imports. The latest deal, signed on 3 May with a headline figure of $22 billion, was signed with a Japanese-French consortium including Mitsubishi Heavy Industries, Itochu, GDF Suez and Areva. The group will build a 4,800MW plant in the Black Sea province of Sinop.

The government of Recep Tayyip Erdogan has been ebullient about the implications of the Sinop plant and the third facility which will follow (and which may be built domestically). Erdogan has claimed that “we will not need to import one-third of our current natural gas imports when our nuclear plants are online, saving $7.2 billion annually”. Energy Minister Taner Yildiz has also said that the Sinop plant will save the country $84 billion over its 60-year lifespan.

But as David O’Byrne points out, the project doesn’t necessarily deserve the triumphalism which the government has given it. For one thing the deal is not a construction contract but just an agreement on exclusive negotiations. For another, Turkey has previously rebuffed GDF Suez because of political disagreements between the Turkish and French governments. This could conceivably happen again, which would raise a question mark about GDF Suez’s involvement. So would any attempt at energy cooperation with Cyprus, which has already led to Italy’s Eni being shut out of projects in Turkey.

These are only hypothetical but possible in Turkey’s politicized energy business. Most significantly, the Sinop plant will not be producing electricity until at least 2023. The third plant will not be operating until several years after that, and even the first plant is not expected to be activated until

2020. So for the rest of the decade, with electricity consumption expected to rise around 7% per year, Turkey will remain reliant on other forms of energy, particularly gas.

9 In any case, the government’s plan is for nuclear power to supply only 10% of Turkey’s electricity by 2023, or around 9000 MW. Although that’s 10% higher than now, the realities of the energy mix mean that gas-fired plants will continue to underpin electricity generation – they provided 42% last year - even after 2023.

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