Plans for a 2,000-mile pipeline to reduce dependence on imports from Russia have been dealt a blow by BP's cost assessment
Plans to build a gas pipeline to the heart of Europe to reduce dependence on Russian imports have been dealt a blow after estimated costs almost doubled.
The proposed 2,000-mile (3,200km) Nabucco pipeline would transport gas from BP's $20bn (�12.3bn) new project in the Caspian Sea to Austria via Turkey and the Balkans.
The consortium of European energy companies, which are competing against two smaller pipeline projects, currently estimates the cost at ?7.9bn (�6.7bn).
But the Guardian has learned that BP's own assessment puts the cost at around ?14bn, partly because of soaring commodity prices. The price of iron ore, a key ingredient for steel, has increased by half in the past year.
Doubts are already growing over Nabucco's viability because it aims to draw in gas from undeveloped fields in Turkmenistan and Iraq, as well as Azerbaijan.
Only a third of Nabucco's capacity would be used initially when BP's Shah Deniz II project in Azerbaijan is due to come on stream in 2017. It could be many years before Iraq and Turkmenistan are ready to ship gas through the pipeline. Global gas supplies have also increased dramatically in the past three years, while demand in Europe has slumped following the recession.
The two competing projects would use existing pipelines in Turkey rather than building a dedicated route. The IGTI 185-mile pipeline would pump gas to Greece and Italy, with a published cost of ?2.5bn. The TAP consortium, which includes Statoil and E.ON, is proposing the shortest and cheapest pipeline, at ?1.1bn, linking Greece and Italy, with the option of building more connections into the former Yugoslavia. Both would have about one third of Nabucco's capacity.
The costs of these two projects are also likely to be affected by higher commodity prices. But because both would plan to start operations at fuller capacity, the higher costs would be less keenly felt.
Building a new direct gas pipeline from Azerbaijan into Europe, via Turkey, has been dubbed by the industry the "fourth corridor" and will go a long way to ensuring the contintent's security of supply. Supplies were cut in the row between Russia and Ukraine in the winter of 2009 over export tariffs, leaving tens of thousands of homes and businesses in south eastern Europe without heating or power.
Graham Sadler, managing director of petroleum services at Deloitte, said: "The European commission supports the Nabucco project, as it helps reduce Europe's dependence on Russian gas. But the economics of the project are in the balance. It's difficult launching and financing an infrastructure megaproject into a gas market which already has access to competitively priced supplies of gas. There have also been issues with commodity prices and with the resource base that would underpin gas supplies."
BP said: "The Shah Deniz consortium is keen to work with the Nabucco and other pipeline groups to make sure there is a viable pipeline bringing Azeri gas to Europe in the near future."
Source: http://www.guardian.co.uk/business/2011/feb/20/european-gas-pipeline-nabucco-costs-double
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