Turkey links up with Azerbaijan on $6bn gas pipeline

A new contender to the Nabucco pipeline takes pole position in the race to provide Europe with an alternative gas supply.

Turkey and Azerbaijan yesterday joined forces to create a US$6 billion (Dh22.04bn) challenge to the Nabucco pipeline, the troubled infrastructure project designed to reduce Europe's dependence on Russian gas.

State-owned companies from both countries signed a memorandum of understanding to establish a consortium that will be responsible for building a pipeline connecting gas-rich Azerbaijan with Turkey, the gateway to Europe.

Azerbaijan's Socar and Turkey's operator Botas - Boru Hatlari Ile Petrol Tasima - as well as the oil firm Türkiye Petrolleriare the founding members of the organisation, which may expand to take on more firms, said the Turkish energy ministry.

The new project has immediately catapulted itself to the top of a list of plans to deliver Azerbaijani gas to Europe, of which the Austrian oil and gas company OMV-led Nabucco project is only the most prominent.

"The Nabucco pipeline project has been made redundant by the Trans-Anatolian gas pipeline project," said the consultancy Business Monitor International (BMI).

The pipeline would be built across Turkey's Asian region of Anatolia and be completed by 2017, said Taner Yildiz, the Turkish energy minister. This would coincide with the second phase of the Shah Deniz field development, Azerbaijan's main source of gas, coming online. Bloomberg News last month quoted Socar's vice president as saying the pipeline would have a capacity of 21 billion cubic metres and cost $6bn to $7bn, even though Turkey's state-run Anatolia news agency has since cautioned it was too early to make accurate predictions on costs.

The project is boosted by a recent gas supply purchase agreement between Botas and Socar, and BMI estimates that about half of the gas flowing through the pipeline could end up for consumption in Turkey.

Another boon is that Turkey will command a transit fee thanks to an agreement struck with Azerbaijan.

"It is a plausible competitor to Nabucco, particularly as there has been some agreement on transit fees, which makes it more attractive for Turkey. Nabucco was based on an intergovernmental agreement, which didn't allow for fees," said Robin Mills, the head consultant at Manaar Consulting.

"On the surface of it, it does sound like the best proposition so far. But the other contenders will be quick in to point out all the weaknesses."

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