Alexandros Petersen
Woodrow Wilson International Center for Scholars
Washington, DC
The Nabucco Pipeline project is dead. BP PLC killed it. The epic five-country natural gas pipeline that was to bring Caspian resources to Central Europe and lessen European Union dependence on Russian supplies was scuppered in late September by the very same supermajor expected to supply it with gas from Azerbaijan.
As an Oct. 1 deadline approached for Nabucco and its smaller competitors to submit commercial transit and tariff terms to Azerbaijan's Shah Deniz consortium—one of the holders of the gas—BP, with a 25.5% stake in Shah Deniz, proposed its own alternative project: the South East Europe Pipeline (SEEP).
Essentially a portion of Nabucco, SEEP is smaller, cheaper, and more realistic. And it's got a gas-holding supermajor behind it. Most importantly, while Nabucco at around 30 billion cu m (bcm)/year had a capacity three times the amount of natural gas immediately available from Shah Deniz, SEEP's capacity hovers around 10 bcm—just enough to realize the task at hand.
BP representatives also have discussed future capacity expansion, should more gas—from Azerbaijan's newly confirmed Absheron field or from Turkmenistan across the Caspian—become available. On the face of it, SEEP provides less risk up-front and flexibility in the long run.
In some ways, this is welcome news. Nabucco was always a white elephant of sorts. It was endorsed by the European Commission as a strategic project to help solve Europe's energy security woes, but it put the cart before the horse. Building transit capacity without first securing the resources to fill it is not the typical course of action.
Serious concerns also surrounded its cost (up to $20 billion at last estimate) and financing. Even with seed funds from the European Bank for Reconstruction and Development (EBRD), finding private sector investment for the project would have been difficult in today's economic environment.
Nabucco's consortium, a hodgepodge of national energy companies along its route and larger players such as Germany's RWE AG, never had the clout of even a beleaguered supermajor like BP. It is perhaps not surprising that Nabucco's start date was delayed at least four times over an 8-year period.
This said, BP's alternative is far from the ideal project. One of Nabucco's original smaller competitors is closer to fitting the bill. The Trans-Adriatic Pipeline (TAP) is also a 10 bcm/year project, but with the ready option of expanding to 20 bcm/year should gas become available. It has strong shareholders in Statoil, E.On Ruhrgas, and EGL, so that it won't have to go begging for investment.
The main difference is that SEEP will terminate in Austria, whereas TAP plans to head to Italy through Greece and Albania. TAP has also been laying the groundwork with transit countries and dealing with regulatory hurdles for several years, whereas SEEP was just announced.
SEEP may well have legs though. With BP's Russian investments foundering, it has announced its intent to double down on commitments to develop Azerbaijani gas and oil reserves. Having its own export pipeline fits neatly into this new strategy. But, it will face competition from its Shah Deniz consortium partner Statoil—also with 25.5%.
As a major shareholder in both Shah Deniz and TAP, Statoil claims there are "Chinese walls" between the two operations. But, it will probably take the opportunity, now that Nabucco is out of the game. to push its own realistic, cheap, and flexible project.
In fact, Statoil and TAP may well be the thinking man's horse in the race. BP may have come back strong in Azerbaijan, but in the years it spent focused on its Russian investments it had to deemphasize its Caspian presence so as not to be perceived as competing with Gazprom in the region. Statoil filled the void in the meantime and has emerged as the player with the most influence with the Azerbaijani government.
This standing is of paramount importance. Now that the four pipeline projects have submitted their proposals, the decision lies with the holders of the gas itself. And, while BP and Statoil may be majority shareholders in Shah Deniz, the nature of gas development in Azerbaijan means that the government in Baku will have the final say on how its gas gets transported.
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