Zacks_Analysts' Blog : BP Joins Caspian Gas Pipeline War - Analyst Blog

BP Plc (BP) recently presented another route for the transportation of Caspian gas to Europe, making the competitive scene even worse. The major contenders are now the Nabucco, Trans Adriatic Pipeline (“TAP”) and Interconnector Greece-Italy (“IGI”) Poseidon groups.

The proposal given by BP includes construction of a 1,300 kilometer transport system, named South East Europe Pipeline, linking the Shah Deniz field, a major Azerbaijan gas field, to a gas hub in Austria. The route is similar to that of the European Union (EU) backed Nabucco pipeline but BP’s pipeline length would be one third Nabucco’s.

BP’s pipeline would stretch from western Turkey to the Hungary border crossing Bulgaria and Romania. It would have a capacity to carry 10 billion cubic meters (BCM) of gas per year.

Nabucco, expected to carry 31 BCM a year, is backed by Austrian energy company OMV, German utility RWE and Hungarian oil group MOL. Though Nabucco is the most aggressive of the players, the BP and Socar have called it unviable citing it as a very expensive proposition since it will require additional supplies or to keep running perennially. Nevertheless, the EU supports Nabucco as it will reduce dependency on Russian energy.

Another contender, TAP to be developed by three companies including Norwegian oil and gas giant  Statoil ASA (STO) is waiting to secure agreements and permits.

Finally, IGI Poseidon is supported by Italian utility Edison SpA and state controlled Greek utility DEPA and is the most advanced project in terms of engineering and construction permits.

BP, being the operator of the Shah Deniz II field along with its partners, Statoil and Azerbaijan state oil company Socar, has significant influence over the decision on the consortium to transport gas from the field. With only a few days remaining for the final submission of the pipeline project report, the Shah Deniz consortium is expected to make a final decision by the end of 2011.

Socar has announced that by 2017–18, Azerbaijan will be prepared to provide Europe with 10 BCM of natural gas from Shah Deniz. With BP positioned at an opportune place, we maintain a Neutral rating on the stock for the long term.