Friday, October 31, 2014

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Reinhard Mitschek: Nabucco Offers the Biggest Market Access without Hidden Costs

Natural Gas Europe was pleased to have the opportunity to interview Reinhard Mitschek, CEO of Nabucco Gas Pipeline International GmbH in advance of the final decision to be taken by the Shah Deniz consortium in selecting the preferred route to move Caspian gas to Europe.

The "race" for the final selection of the route for the Southern Corridor is just around the corner. How can you assess Nabucco West's initiatives over the past few weeks in relation to the requirements and specifications as they have been outlined by the Shah Deniz Consortium?

We are moving forward in achieving our goal of being the most commercially effective, technically advanced and financially feasible project in the Southern Gas Corridor. This month, we launched the registration of the Open Season, which allows potential shippers to register their interest in capacity allocation on the Nabucco pipeline. Interest in the Open Season has already exceeded expectations, and this demonstrates that there is a strong demand for a route connecting Caspian gas to the markets of South Eastern Europe, the Balkans, and Central Europe.

At the same time, we are moving ahead in terms of project development. Bulgaria recently became the second country to complete the Environmental Impact Assessment procedure for the Nabucco pipeline. There has also been marked progress in the re-FEED for Nabucco West and other engineering works. We are continuing to cooperate with the International Financial Institutions to ensure the bankability of the project, a large part of the legal due diligence has already been completed.

A Letter of Intent has been signed with the IFIs most recently. We also recently launched the pre-qualification phase of a tender for line pipe procurement. These project developments come on the helm of some significant agreements we have concluded since the beginning of the year.

In January we concluded the Cooperation Agreement and Equity Option & Funding Agreement with the Shah Deniz consortium, which allows us to work closely with the producers and also defines the terms under which they will assume stakes in the project. We also concluded a Memorandum of Understanding with the Trans Anatolian Pipeline, to further develop the complementarity of the projects. We were able to offer the results of the extensive engineering works we have already carried out on Turkish soil, as well as the EIA permits already concluded.

The milestones in project development ensure that when Caspian gas is ready to be delivered to Europe, the Nabucco pipeline is ready to transport it. The Agreements outlined above demonstrate Nabucco’s alignment with the other parts of the highly complex Southern Corridor value chain: it is important that all the players work together to ensure the best results for the producers, shippers and consumers. We are convinced that our efforts will ensure a win-win proposition for all concerned in the transport of Shah Deniz gas to Europe.

In short what constitutes the greatest advantage of Nabucco compared to its competition?

Nabucco offers the biggest market access without hidden costs. Nabucco is the shortest and most direct route into the SEE markets providing access via the pipeline and already existing interconnections to all countries in South Eastern Europe including Italy, Albania and Greece.

Consequently Nabucco promotes liquidity and diversification across some of the most under-diversified markets in Europe. Via Baumgarten near Vienna – the Central European Gas Hub - the entire European gas consumer market can be reached. The storage capacities in the transit countries add up to 16bcm without further investment. The watertight legal framework of Nabucco is based on a treaty between the Transit counties and bilateral project support agreements that allows a harmonized commercial pipeline operation.

The markets that Nabucco accesses have growing demand for diversification, there is interest in Caspian gas delivered via Nabucco. The infrastructure exists to reach a wide consumer base. Nabucco makes commercial sense and brings added value to the producers and shippers!

Do you estimate that Nabucco has both the necessary political backing by the countries it will transit as well as overall backing by the EU's Commission?

Nabucco is a European project, with transit countries that are members of the European Union, and will fulfill the needs of European energy policy. There is widespread recognition of these advantages. Nabucco enjoys wide political support, as shown by the recent letter from the Foreign Ministers of the Nabucco transit countries to the European Commission stressing Nabucco’s potential.

The key advantage for Nabucco is that the political support of the transit countries is translated into concrete steps needed for the project’s development. The Nabucco Intergovernmental Agreement created the Nabucco political committee, which consists of government representatives of Austria, Hungary, Romania, Bulgaria and Turkey who meet on a regular basis to discuss the project’s development and ensure cooperation at a high level. At the Budapest committee meeting, the governments recommended to their authorities to treat Nabucco as a priority project.

At the latest political committee meeting in Bucharest on 21 May, the governments committed to further establishing the necessary interconnections so that gas from Nabucco is able to reach Southern Europe and North-Central Europe, as well as the Balkans, and South Eastern Europe.

On a commercial level, is the European market perspective in terms of future gas consumption favorable for the Nabucco project or do you estimate that modifications could occur in terms of pipeline capacity?

It is an undisputable fact that the domestic production in the EU countries is rapidly declining. While gas demand in Europe will rise by 43% by 2030 according to Eurogas domestic production will decrease. Today European production accounts for 59% of European supplies, and it is expected to fall to a third by 2020 and a quarter in 2030. Consequently this gas has to be filled with increased imports. The Caspian region is the obvious source of new gas for Europe, given its proximity and its resources. There is no doubt that there is market demand for the Southern Gas Corridor to be opened, and no doubt that Nabucco is the pipeline to open it.

In certain cases EU officials have noted that indeed two pipelines may be built (Both Nabucco West and TAP). Do you think this is a valid assumption and does this constitute any sort of challenge for your project?

It is clear that Europe will need more gas in the future but if more than one pipeline will be built is first of all a commercial decision of the producers. NABUCCO is ready to deliver. Any other scenario has to be discussed, after the pipeline decision has been made.

Lastly, what was the most important "moment" regarding the management of the Nabucco pipeline project for you so far? More specifically were there any "special" challenges and trials that played an important role for the progress of the project, looking back in time until present day? 

The development of an multinational cross border pipeline project consists of many important moments that establish the full picture at the end. To give one example; The establishment of our very comprehensive legal framework with the Intergovernmental Agreement – a treaty  that was ratified in the parliaments of Turkey, Bulgaria, Romania, Hungary and Austria was a challenging but very satisfying major milestone.

 

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