IHS Global Insight Perspective | |
Significance | Following E.ON’s buy-in to the planned Trans-Adriatic Pipeline (TAP), the Nabucco consortium has launched a defence of its viability, adding to the sense of rivalry over Europe’s burgeoning southern gas corridor. |
Implications | TAP and Nabucco are not directly comparable as projects, given the difference in scale. However, rivalry can be seen in the need to secure Azeri gas production and demonstrable end-markets. |
Outlook | E.ON’s stake in TAP and the subsequent rancour sees Europe divided over energy security issues yet again. |
Last week, Germany’s E.ON Ruhrgas joined the Trans Adriatic Pipeline (TAP) project, taking a 15% stake from founding partners Statoil of Norway and Swiss EGL. The consortium aims to build a 520-km pipeline with a capacity of between 10 bcm and 20 bcm/y, starting in Greece, near Thessaloniki, and running across Albania and the Adriatic Sea to land near Brindisi, Italy. Statoil and EGL now each hold a 42.5% stake in the project company.
The move has opened up a war of words between TAP and the consortium behind Nabucco, the 31-bcm/y gas pipeline that will run from Turkey to Austria by 2014. This is not the first time that competing southern corridor projects have goaded each other over viability. Last November, Nabucco partner RWE released a study examining all the proposed southern corridor routes to Europe—including Interconnector Greece-Italy (ITGI), South Stream, and TAP—and came to the unsurprising conclusion that only Nabucco offered Caspian producers the highest net-back value for their planned gas deliveries to Europe and a secure transportation route. In addition, according to the RWE report, "the figures clearly show that Nabucco is significantly the cheapest of all the proposed southern corridor projects in terms of the cost of transporting the gas to Europe". Seen alongside the oft-denied but widely acknowledged competition between South Stream and Nabucco, it appears as if Europe is as fractured as ever over energy security.
Following last week’s move to join TAP, E.ON Ruhrgas's head of gas supply Jochen Weise was reported on Reuters as saying; "In our view, TAP is the most promising route for moving gas to southern and central Europe. " He added; "A strong supply base in the Caspian and a good market in Italy needs to be combined in the most efficient way, and I think you should also ask [the] Nabucco consortium whether that is also in place in the case of their project" Nabucco defended itself, saying in a statement; "The Nabucco gas pipeline offers the best overall solution. The overall investment is 7.9 billion euro; 4.5 billion euro will be invested in the Turkish infrastructure alone. The TAP offers no such contribution at all."
Like for Like
The problem with the arguments between TAP and Nabucco is that they focus attention on precisely the area where they are not rivals— infrastructure. TAP is essentially an interconnector and is much more likely to face competition from the planned ITGI pipeline, which is set to launch in 2012 (the same year as TAP). Nabucco is vast in scale and will consist of mostly new infrastructure, whereas TAP will use existing pipelines where possible. The criticism by Nabucco that it will invest in Turkey, whereas TAP won’t, could be countered by TAP’s notable investment in the Greek gas transmission system. Both projects are set to bring wider benefits to a region of Europe that is vulnerable to security-of-supply risks and lack of investment. Both Nabucco and TAP have benefitted from financial support from the European TEN-E programme, with TAP listed as a "project of common interest" and Nabucco as a "priority project".
Where TAP and Nabucco face a real battle is in securing production from Azerbaijan, and in obtaining demonstrable end-market demand to meet supply. TAP could have the edge on production, as shareholder Statoil has a 25.5% stake in the Azeri Shah Deniz field. In June 2007 TAP shareholder EGL signed a 25-year deal with the National Iran Gas Export Co. (NIGEC) to deliver 5.5 bcm/y to Europe, through the TAP, from 2012. Nabucco has no commercial supply deals in place, although it is set to launch an open season later this year. On the end-market side, in April this year E.ON abandoned the sale of its Italian gas grid and decided to continue operating the business itself. E.ON has five companies that distribute gas in Italy: E.ON Rete Laghi, E.ON Rete Mediterranea, E.ON Rete Orobica, E.ON Rete Padana, and E.ON Rete Triveneto, as well as an active consumer base. It also has Endesa’s former Italian business, consisting of gas-fired power stations as well as two planned LNG import terminals. According to IHS CERA, Italian gas demand will reach 76.13 bcm in 2012, compared with 2009’s 74.75 bcm.
TAP and Nabucco: A Comparison | |||
Pipeline Name | Capacity | Start-up (*IHS Global Insight Estimate) | Route |
Trans-Adriatic Pipeline | 10 bcm/y initial capacity, rising to 20 bcm/y | 2012* | Greece-Albania-southern Italy |
Nabucco | 8 bcm/y initial capacity rising incrementally to 31 bcm/y total | 2014 for first phase | Turkey – Bulgaria - Romania-Hungary - Austria |
Outlook and Implications
The divisions over TAP and Nabucco are a symptom of the problem, not the problem itself. That two arch-rival German companies (RWE and E.ON) have opted for different projects has exacerbated the issue, although the main event is the fractious (and fractured) nature of Europe’s energy security situation. The upstream competition for contracts is the elephant in the room; only South Stream has no overt plans to source gas from Azerbaijan, leaving the other three pipelines to compete with each other. No commercial contracts between Azerbaijan and any shareholders in TAP, Nabucco, or ITGI exist, only overarching memorandums of understanding and high-level political rhetoric. However, this sense of competition might increase over time as Azerbaijan and Turkey have recently mended fences over their long-running price dispute, making transportation of Azeri gas through Turkey hurdle-free, at least in theory. This year sees the deadline for final investment decisions for all four pipelines.