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BP enters southern corridor pipeline race
by Staff Writers
London (UPI) Sep 28, 2011

disclaimer: image is for illustration purposes only

British oil producer BP has introduced a fourth entrant in a competing series of proposed southern corridor natural gas pipelines from Azerbaijan to Europe.

Like the proposed Nabucco, Trans-Adriatic and IGI Poseidon pipeline plans, BP's proposal would connect gas supplies from the Azerbaijan's Shah Deniz II gas field in the Caspian Sea to European customers.

But it would be a smaller and lower-cost alternative to the others, multiple reports indicated.

The Financial Times reported the pipeline capacity would be 10 billion cubic meters per year -- the amount the shareholders of the Shah Deniz II field say they will be capable of producing by 2017.

The capacity of the Nabucco project, meanwhile, would be three times that amount and could be used to transport natural gas not just from Azerbaijan but from additional sources, such as Turkmenistan and Iraq.

Nabucco's costs have been officially set at $10.7 billion, although sources familiar with the project told the newspaper the 2,400-mile pipeline could actually end up costing more than $27 billion.

BP's alternative, known as the South-East Europe Pipeline, would be shorter at 800 miles and would use existing pipelines from Azerbaijan to Turkey for part of the route, as well as from Hungary's eastern frontier to the Austrian gas hub on the other end.

In between it would run across Bulgaria, Romania and Croatia, making it far cheaper than Nabucco and a viable alternative to the Trans-Adriatic and IGI Poseidon ventures, Al Cook, BP's vice president for Shah Deniz development, told the Financial Times.

"It doesn't follow from this that we necessarily find flaws in the three offers. But it is wise to have another option," he said.

BP and Norway's Statoil own 50 percent of the Shah Deniz gas field, along with minority stakeholders including Socar, the Azerbaijan state oil company, as well as France's Total, Russia's Lukoil, Italy's Eni, the National Iranian Oil Company and the Turkish Petroleum Corp.

The Shah Deniz consortium on Saturday will consider tariff proposals from the pipeline competitors to assess their commercial viability as it moves toward an end-of-the-year deadline to decide which will get the nod.

Information on the South-East Europe Pipeline will be considered during the assessment process, an unnamed BP source told the Azeri Press Agency, adding that BP's proposal has three advantages.

"First, this project is cheap," the source said. "Second, the European Commission supports the diversification gas sources in the same area. Third, Azerbaijan is also interested in this variant, because Azerbaijan will sell its gas and those countries will purchase the gas."

The smaller size of the BP proposal may be of more interest to the Azeris, since it is designed specifically for the Shah Deniz field, while the Nabucco project is aimed more at satisfying the strategic needs of Europe as it tries to lessen its dependence on Russian gas supplies, the agency reported.

The excess capacity of the Nabucco pipeline and the need to fill it could pose challenge to its perceived financial viability, the London oil and gas industry analysts ICIS Heren reported last week.

"It is understood that in negotiations, SOCAR and the Shah Deniz consortium have consistently said they will not pay for empty capacity," the analysts said.

ICIS quoted Gerhard Roiss, chief executive of the Austrian energy group OMV, as saying Nabucco is building an economic model based on assumed flows of 21 billion cubic meters per year -- 11 billion cubic meters per year more than what the Shah Deniz consortium has said it will have available.

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