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When in 2003 the planners of the Nabucco pipeline named their 31 bcm/y project after the famous Verdi opera, they might not have been able to imagine that almost ten years latter they would still be “singing” in the Southern Gas Corridor “operetta”.  In reality many of them would feel relieved that they are still able to perform one of the two leading roles even though the size of their role has been diminished by almost 2/3 compared to their original concept. It was nevertheless the exact downsizing of the original project that still allows Nabucco West to play in the “grand finale” against the Trans Adriatic Pipeline (TAP) over the selection route for the transport of 10 bcm/y of Shah Deniz 2 gas to Europe. If Nabucco had been unable to transform from the 3.900km project to a much smaller 1.312km line that aspires to link European Turkey with Baumgarten, TAP would have almost certainly won.

The transformation of Nabucco to a far less ambitious project that is effectively tailor-made to meet the needs of the Shah Deniz partners while disregarding the needs of potential suppliers from the Middle East (and most probably Turkmenistan) was not an automatic process. There have been significant tensionsand disagreements between the Nabucco partners as SOCAR and Botas championed the idea of the TANAP pipeline which basically replaced the Asiatic component of the original Nabucco but simultaneously annulled any realistic prospect for the medium-term export of Iraqi –or more precisely- Kurdish gas from the Khor Mor and Chemchemal fields that are currently developed by Nabucco leaders OMV and MOL.

Despite these tensions as SOCAR became more and more adamant in securing the leading role in the TANAP project, Nabucco was left with no real option but to adjust to SOCAR’s requirements as another leading Shah Deniz member, BP, was aggressively championing the rival South East European Pipeline or SEEP. SEEP, whose regulatory and financial details were never fully detailed, initially appeared as a strong competitor to Nabucco given BP’s backing and the fact that it aspired to utilize pre-existing pipeline infrastructure, such as the Interconnectors between Bulgaria, Romania, Serbia and Hungary, that would have been commissioned throughout S.E. Europe by 2015.

Some observers indicated that the vagueness of SEEP’s technical details were deliberate since the entire project was in effect a Shah Deniz stratagem to force Nabucco’s compliance to the needs of SOCAR and its other Shah Deniz partners that are developing in partnership with the Azeri NOC (National Oil Company) other very promising acreage in Azerbaijan’s offshore sector, like the Absheron (Total), Umid/Babek (SOCAR), AGC Deep (BP) and Shafag / Asiman (BP) fields. The potential exports of these fields should be given absolute priority over uncertain flows of natural gas that emanated from volatile areas like Kurdish Iraq and Turkmenistan were none of the abovementioned SD partners have any major upstream presence.

Even though SEEP’s obscurity was deliberate and–in combination with TANAP’s emergence- did make the downsizing of Nabucco practically inevitable, the principal reason behind SEEP’s demise may be found in the fact that it never aspired to link SEEP with a major European hub. SEEP’s principal target was to divide the 10 bcm/y of the Shah Deniz gas almost equally between the five principal Balkan consumers (Greece, Bulgaria, Romania, Hungary and Serbia) and might have left the option of increasing its scalability to another 10 bcm/y in order to reach Baumgarten after Shah Deniz 2 exports had been sold out. In effect SEEP appears to have violated one of Shah Deniz’s principal selection criteria, namely that the selected infrastructure should be nearly automatically scalable to export another 10 bcm/y of future Azeri export capacity.

These additional 10 bcm/y, which may not be available before 2025, cannot be absorbed by the aforementioned five Balkan states and would have to be transported in toto to Baumgarten. Nabucco-West (Nab-West) offers both options and does not stop at the Austrian-Hungarian border, as SEEP’s latest draft routing suggested. Nabucco proposes to sell 4-5 bcm/y to Bulgaria, Romania and Hungary while transporting the remaining 5-6 bcm/y to Baumgarten at a cost which is still unspecified. On 29 June Reinhard Mitscheck, the project’s CEO noted in a press conference following the announcement of Nab-West’s selection the day before, that “Nabucco delivers freedom of choice to gas consumers and will contribute considerably to the security of supply in Europe” but of course did not disclose the actual cost of the scaled-down 1.312-km line. What he did stress though is that Nabucco has already in place a strong “legal framework with Romania, Bulgaria, Austria, it [Nabucco] also has European commission’s support” Moreover, Mitscheck emphasized “Nabucco West can transport gas not only to onefinancial market, but to all Europe”.

Mitscheck was indirectly referring to what may prove to be TAP’s Achilles ‘Heel: the lack of an Intergovernmental Agreement between Greece, Albania and Italy that would facilitate the granting of all the necessary environmental and Third-Party Access permits. Even though Mitscheck appears to be undervaluing the significance of the Italian market as a major consumer of Azeri gas as well as Italy’s ability to act as a transit state towards Switzerland and more importantly France, Total’s “home market”, he has a salient point when illustrating the support Nabucco has been getting from the European Commission.

EU Energy Commissioner Gunther Oettinger was quick to commend Shah Deniz on its decision by noting that Nab-West’s selection “represented a success for Europe and for our security of supply”. The Commission’s dedicated endorsement of Nabucco is the principal reason why the continued absence of an IGA agreement between TAP’s “Host Governments” may prove to be detrimental to the project’s chances, despite the fact that it is considerably more attractive than Nab-West from a financial and commercial point of view. TAP has access to a major scalable market in Italy that is also very well connected with all Central and Western European markets in Germany, Switzerland and France.

It should be noted though that Nab-West’ selections seems to have altered the mind of MOL, which has effectively announced its decision to withdraw from Nabucco in May 2012 and still (c.c. late June 2012) has not paid its share (€3 million) of the consortium’s 2012 budget of €18 million. On 2 July 2012, MOL’s spokesman, Domokos Szollar, told DowJones that “This [SD’s selection] could bring an end to the long period of uncertainty resulted from the infeasibility of the original Nabucco plan” adding that the decision in favor of Nab-West confirmed MOL’s calculation that the original concept “wasn’t sustainable”.

It is still unclear whether Nabucco’s finances would make sense in the long-term as TAP’s shareholders’ composition changes to include major global, European and regional players that would only increase the pipeline’s commerciality. TAP’s financial and commercial merits seem to have secured it a key ally that may eventually tip the scale in its favor vis-à-vis Nab-West. On 27 June Al Cook, BPʹs Vice‐President for Shah Deniz (SD) Development, told Dow Jones the SD operator, which owns along with Statoil 25.5% of the consortium, had “in principle” completed negotiations to join TAP and “to help provide funding in the short term.” He added that BP’s participation “will be substantial… We will demonstrate that we are very serious about the success [of TAP].”

It is not yet clear how the shareholders composition of TAP would emerge as both the Italian and Greek governments are reviewing their strategies in order to exchange the signing of an IGA with Albania with the participation of Greek and Italian companies in TAP. BP’s share may even be higher than the present participation (15%) of E.ON in the TAP consortium and may even exceed 20%. However, a share of 20% may be the most likely compromise since the TAP partners are also looking to bring in an Italian and a Greek company. TAP executives have been negotiating with Italy’s Enel and Greece’s M&M over a combined share of 20‐30%. Enel is thought likely to ask for 15‐20%, whereas the Greek gas trader is expected to seek 5‐10%. It is also clear that the Italian government may demand the inclusion of ENI, Italy’s national oil and gas company, which has a leading upstream position in Kazakhstan’s major producing gas field in Karachaganak.

BP’s announcement will likely precipitate the talks between TAP, Enel, ENI and M&M. The Italian government is increasingly keen on TAP following a rejection in June 2012 of the revised Interconnector Turkey‐Greece‐Italy (ITGI) proposal by the Shah Deniz partners.  Mr Cook said BP’s decision to invest in TAP “was partially motivated by the changing regulatory and economic outlook in Italy.” Italy’s increased regulatory flexibility is an indication that Rome has fully abandoned ITGI. It is still unclear what the policy of the new Greek government will be, with former DEPA President Makis Papageorgiou being sworn in last week as Deputy Minister of Energy. Mr. Papageorgiou is perceived as a supporter of the IGI/Poseidon component of ITGI, which was established during his tenure at state gas utility DEPA in 2008.

The 17 June 2012 elections have resulted in a divided structure of power within the Greek Ministry of Energy where the top job landed in the hands of a non-elected University Professor of Cartography, Dr. Evangelos Livieratos who is a personal choice of PASOK’s President and former Finance Minister Evangelos Venizelos.  It is not yet clear what would be the division of powers between Livieratos, Papageorgiou and Stavros Kalafatis, a Nea Demokratia (New Democracy) MP that served as Deputy Development Minister at the previous Karamanlis government (2007-2009). Kalafatis who was Nea Demokratia’s shadow energy minister up to the 6 May elections, was appointed Alternate Minister of Energy, the second most powerful executive position within the Ministry.

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