Trans-Caspian gas pipeline vital to Nabucco
Contentious trans-Caspian gas pipeline will be built; Shah Deniz gas will be transported through Nabucco; managing director Reinhard Mitschek talks to Kwok W Wan
THE Nabucco pipeline depends on gas supplies from Turkmenistan
through a Trans-Caspian pipeline, the project’s
managing director told Petroleum Economist. The 31
billion cubic metre a year (cm/y) EU-backed Nabucco project
– which aims to bring central Asian gas to
Austria’s Baumgarten hub and help reduce EU
reliance on Russian imports – is bidding for the first
10 billion cm/y from Azerbaijan’s Shah Deniz phase
But it also needs gas from Turkmenistan and Iraq to fill the
pipeline’s capacity. Nabucco expects to secure 10
billion to 15 billion cm each from Turkmenistan and Iraq, but
would require a subsea link, beneath the Caspian, to receive
Turkmenistani gas, Reinhard Mitschek said.
No plan B
"In Turkmenistan, there is enough gas –
besides exports to Russia and China – to deliver gas
to Europe," Mitschek said. "There is no plan B to link
Turkmenistan to Nabucco – we expect a connection
through a Trans-Caspian pipeline." The EU has initiated talks to build the
subsea link to connect Turkmenistan to Azerbaijan, but faces
potential political objections over the status of the Caspian
Sea, as well as uncertainty over funding of the project.
Turkmenistan has massive gas reserves, estimated by Cedigaz at
8.34 trillion cm – the fifth-largest in the world. But
independent auditor Gaffney, Cline & Associates recently
upgraded reserves at the South Iolotan gasfield alone to
between 13.1 trillion and 21.2 trillion cm, making the field
the world’s second largest, after
Iran’s South Pars. And, according to President
Gurbanguly Berdymukhammedov, the country has begun building a
$2 billion East-West pipeline to link South Iolotan to the
Turkmenistan aims to more than quadruple production to 230
billion cm/y by 2030, up from 41.61 billion cm/y in 2010, and
to export 180 billion cm/y. Its geography ideally places the
country between the European and Asian markets. As well as
sending around 40 billion cm to Russia, it exported 4 billion
cm to China in 2010, during the first year of operation the
Central Asia-China pipeline and is looking to raise flows to 17
billion cm in 2012 and 20 billion cm in 2015.
Mitschek said that Nabucco would most probably need a
third gas supplier after Azerbaijan and Turkmenistan to fill
its capacity and claimed the project is gaining attention from
companies operating in Iraq. "In Iraq, exploration and
production operators are showing more and more interest in
Nabucco," he said, adding that companies were looking at the
pipeline as a way to export not just output from
Iraq’s gasfields, but associated gas as well.
Iraq is considering gas exports to Europe
through Turkey, but not necessarily through Nabucco, the oil
ministry said last month.
Mitschek expected "at least 10 billion cm/y" of gas from
Azerbaijan, adding that the volume would more likely top 15
billion cm/y. The result of bidding to secure output from phase
two of Shah Deniz is expected in the fourth quarter.
"I’m confident Nabucco present the most
competitive and comprehensive offer …
there’s no doubt that Shah Deniz gas will be
transported through Nabucco," he added.
"I expect Nabucco to be filled very, very soon once the first
gas-transportation contract is concluded and a race for
capacity will start. It’s what we saw for other
pipeline projects and that’s what
we’ll also see for Nabucco."
Delays and cost
Mitschek also defended Nabucco’s cost
projection and timelines. Austria’s OMV –
one of Nabucco’s six shareholders – said
first gas may be in 2018, a year later than the original
project start date of 2017; while EU energy commissioner
Guenther Oettinger said the pipeline could cost between
€10 billion ($13.3 billion) and €14 billion, compared
with the latest official estimate of €7.9 billion.
But Mitschek countered: "From the pure project perspective, we
can deliver the project by 2017. We have to see and balance
between the supply and demand markets. If the market needs the
gas by 2017, the project will be ready by 2017. If
that’s not the case, we can discuss another
Front-end engineering and design (Feed) work for Nabucco is
under way. Mitschek said the work is 70-75% complete and should
be finished by first-quarter 2012, with the investment costs to
be evaluated by then. "It’s too early to change
[the cost] figures. We’ll see after open season (a
process to express interest and book pipeline capacity) and
Feed completion what the investment figure will be, but
I’m confident we are in an appropriate range for
the time being."
The other shareholders in Nabucco are: Bulgarian Energy
Holding, Turkey’s Botas, Hungary’s
Mol, OMV of Austria, German RWE, and Romania’s
Transgaz. Germany’s Bayerngas is in talks to join
Southern Corridor competition
Nabucco also faces competition from other so-called Southern Corridor gas-pipeline projects,
including the Interconnector Turkey Greece Italy and Trans
Adriatic Pipeline, which have also bid for Shah Deniz phase-two
gas. Both are shorter, and cheaper, projects, which are
expected to deliver 10 billion cm/y from Central Asia to Italy.
But Mitschek said the size and scope of Nabucco offered other
advantages, including delivering gas to the "heart of Europe"
in Austria. "Shorter or smaller means further pipeline
extensions are needed. Customers also don’t need
to book capacity, or contracts in several pipelines in several
countries," he added.
Competition also comes from other gas sources, including
unconventional production and liquefied natural gas shipments.
But rising European demand is expected to absorb all new
supplies. "We expect consumption in Europe to grow and domestic
production to decline, so the import gap will increase,"
Mitschek said. He forecast European gas demand to increase to
between 630 billion and 650 billion cm/y by 2025, reaching 700
billion cm/y by 2030 – consumption in 2010 was 570
billion cm, according to Cedigaz.
The EU is looking to reduce its dependence on Russian gas after
supplies were cut in 2006 and 2009 during payment disputes with transit country
Ukraine. While, adding to rising demand forecasts is
the phase-out of German nuclear power plants, with replacement power generation likely to be