The Great Pipeline Face-Off

By Art Patnaude
It was no coincidence that the president of Azerbaijan visited Brussels Friday: in a week his country and Europe will learn how they will be linked by one of the strongest bonds known to man–fossil fuels.
Next Friday, the Shah Deniz consortium–in which the main players are the State Oil Company of Azerbaijan Republic, or SOCAR BP PLC, BP.LN +0.48% and Norwegian state oil company Statoil AS STL.OS +0.63%A–will decide whether to transport gas from the Caspian Sea to Italy through the Trans Adriatic Pipeline, or to Austria using a rival planned pipeline, Nabucco West.
If President Ilham Aliyev, European Commission President Jose Manuel Barroso, or President of the European Council Herman Van Rompuy knew which one has the edge, they didn’t let on.
Both pipelines have their benefits and disadvantages, and lobbyists for TAP and Nabucco have been working for years to convince the consortium that theirs is best. Standing side by side, Mr. Aliyev and Mr. Barroso both said that either choice is a “win-win” for everyone involved.
“We want to be as close as possible to Europe, and we are very glad that we see the same approach from the European side,” Mr. Aliyev said.
There is little doubt why there is so much agreement here. Azerbaijan has 2 trillion cubic meters of proven gas reserves it wants to sell. Europe is perceived to be its best bet. This is just fine with the Europeans, who are desperately trying to wean themselves off a dependence on Russian natural gas, which accounts for around one-quarter of the EU’s imports.
Mr. Barroso said the so-called Southern Gas Corridor, through which the Azeri gas will flow, could provide more than 10% of the annual needs in Europe over the medium term.
The final choice will stem from a range of factors involving considerations like profits, engineering, and crucially, politics. Mr. Barroso said that Shah Deniz’s two options present “a commercial decision for the consortium.” But, he added, “I would like to stress also that both Nabucco West and TAP are of strategic importance for the diversification of our gas supplies for our single energy market.”
No matter the winner, Mr. Barroso is not ruling out having the other pipeline built at some point down the line. Just as well, because it’s not like Russia is sitting back watching its relevance diminish. State-gas monopoly Gazprom's OGZPY -1.20% South Stream pipeline is aiming to start delivering gas to Europe before the projected 2019 date of either TAP or Nabucco.
So to the two front-runners: take your marks, and get set to go.