The Nabucco pipeline project, which has long been backed by the EU to reduce the continent’s dependency on Russian gas, has been made redundant by the Trans-Anatolian gas pipeline project. The latter is a joint venture (JV) between Azerbaijan’s state oil company Socar and Turkey’s Botas pipeline corporation, and their planned pipeline will carry natural gas from the Shah Deniz offshore gas field in Azerbaijan to Europe. In recent years, Socar has distanced itself from involvement in the south-east European pipeline race. Amongst the three main developers of the field (Socar, Statoil, and BP), Socar was the only one not to have either endorsed or proposed a route. But that has changed.

There were initially five rival plans vying for Shah Deniz-II’s gas. These include: Nabucco, Interconnector Turkey-Greece-Italy (ITGI), the Trans-Adriatic Pipeline (TAP), the recently proposed South East Europe (SEE) pipeline, and White Stream. Socar has now finally stepped forward to make its own proposal – the Trans-Anatolian gas pipeline. The declaration comes just a few months before the Shah Deniz consortium is due to make a final decision. The announcement was made after Turkey and Azerbaijan ratified agreements for the purchase and transit of gas from Shah Deniz-II, ending months of negotiations and occasional tension between the two parties.

According to a report by Bloomberg citing Socar’s Vice President, the proposed Trans-Anatolian gas pipeline has an estimated cost of US$6bn-US$7bn and a capacity of 21bn cubic metres (bcm). The only route details available are that it will travel through Turkey. BMI’s Oil and Gas Team believes that a portion of the gas (possibly even half of the total 21bcm) could be earmarked for the domestic Turkish market (hence Botas’ crucial involvement), thus leaving about 10-11bcm for Europe – the same capacity proposed by the BP and Statoil routes.

We believe that the real contenders will now be the projects backed by Shah Deniz consortium members – BP (25.5% stake), Statoil (25.5% stake) and Socar (10% stake) – as, naturally, they will have more leverage over the decision.

Following Socar’s proposal, we do not consider Nabucco, or the ITGI to be frontrunners any more. The former is too big a project (in terms of costs and proposed capacity) and thus the risks associated with its construction and long-term feasibility are also significant. The heavily politicised nature of Nabucco is also muddying the outlook with regard to its long-term commercial viability. ITGI is a direct rival to Statoil’s proposed TAP pipeline, which we believe – primarily on the basis of its main sponsor’s stake in the Shah Deniz project – has a better chance of succeeding.

Last but not least, we have to consider Turkey’s role and specifically the function that Botas, the state-owned gas pipeline operator, will perform. Botas has already terminated a gas purchase agreement with its long-term supplier Gazprom because of a price dispute, leaving it free to find another partner to help it meet a portion of its gas needs. By bringing Botas on board its project, Socar can build upon its recently-inked gas supply purchase agreement with the company, if its proposed pipeline is selected.