Swiss bid to supply missing gas link to Europe

Keystone

A new pipeline bringing natural gas from the great reserves of the Caspian Sea will help the European Union reduce its dependence on supplies from Russia. A Swiss company is backing what appears to be the favourite bid.

Four consortia were originally competing on this project. Two of them were eliminated last year. The showdown is now between Nabucco Gas Pipeline – formed by four European firms and one Turkish company – and its rival Trans Adriatic Pipeline (TAP) – promoted mainly by the Swiss company Axpo and the Norwegian Statoil.

The winner, to be announced in June, will get to transport the gas extracted from the rich deposits of the Caspian Sea to Europe. What is at stake here is not just a business deal amounting to several billion francs but also the creation of a new south-east corridor for the transport of gas considered of strategic importance by Switzerland as well as the European Union (EU).

“The pipeline project will serve to ensure supplies of gas to Europe in the long term. The new route will allow us an alternative to gas from Russia,” said Marianne Zünd, spokesperson for the Swiss Federal Office of Energy.

For the EU, construction of the new pipeline is a “project of common interest” and fits within the general goal of diversifying sources of gas supply. This goal has been a priority at least since the gas crisis that came to an end on January 1, 2006 after a summit meeting of the Ukrainian and Russian governments.

To punish the Ukraine, which it accused of siphoning Russian gas in transit, Moscow suddenly turned off the taps of its main pipeline supplying Europe. In the space of a few hours several countries – including Germany, France and Italy – were facing a drop of 25-30 per cent in their imports of gas.

The crisis was soon resolved, but the point had been taken. The EU now wants to reduce its dependence on Russia by tapping into the enormous reserves of the Caspian Sea. This gas will come first from the deposits at Shah Deniz, which belongs to Azerbaijan, but other Middle East countries could later become suppliers too. The methane is to be transported to the border of Europe with Turkey by means of the Trans-Anatolian Pipeline, which is to be built by 2017.

Missing link

TAP and Nabucco are competing to build and operate the “missing link”, the pipeline which will bring the gas from Turkey to western and central Europe from 2018 on.

Nabucco is proposing a pipeline of 1300 km crossing Bulgaria, Romania and Hungary and ending up in Austria. TAP envisages a pipeline of 800 km to join the north-south network in Italy, transiting through Greece, Albania and the Adriatic.

Given what’s at stake, both groups are pulling out all the stops to win the support of the EU and the governments involved. They are also offering preliminary agreements to win the favour of the oil companies that are exploiting the Shah Deniz deposits – they will be the ones to decide which pipeline will be the winner. In January, Nabucco offered the companies a 50 per cent share in its capital. A few days later TAP announced a similar offer.

The two rivals are also vying to emphasise the advantages of their respective projects.

“TAP offers the most direct and effective solution from the point of view of the costs of transporting the gas from Turkey to the European network – without financial support from the states or the EU,” says Lisa Givert, spokesperson for the Swiss-led consortium, which has set up shop in canton Zug.

The TAP variant seems ahead on points, but this can change with every preliminary agreement concluded.

Gas

Natural gas provides over 20 per cent of the energy consumed in the world. According to the International Energy Agency, this rate is likely to increase by 25 per cent in the next 20 years.

In Switzerland, gas covers slightly more than 12 per cent of energy requirements. The gas used in Switzerland comes mainly from Norway, Russia, Germany and Algeria.

Supported by government

The originator of the TAP project is the Swiss company Axpo, which has also operated for many years in Italy, where it runs gas-powered electricity generating stations.

“Our objective is above all to use gas coming from the Caspian for our combined-cycle stations in Italy. The remaining part is to be sold on the European market, for example to industry,” says Richard Rogers, spokesperson of Axpo.

The new pipeline would give Axpo a much-needed shot in the arm. The major Swiss producer of atomic energy is likely to be one of the big losers from a new energy strategy put forward by the Swiss government, which intends to phase out its nuclear power plants in the next few decades. Perhaps as a consolation prize, the government has been holding a lot of high-level meetings with representatives of interested countries to promote TAP’s pipeline and give the Swiss company a hand.

This lobbying activity is being criticised by environmentalists in Switzerland, however.

“With the legislation on CO2, which took effect in January, Switzerland committed itself to helping hold global warming below two degrees. So it is just inadmissible that the government should be drumming up support for a project that aims to exploit a fossil fuel like gas,” says Patrick Hofstetter of WWF.

Green parliamentarians are to demand an explanation from the government in the next session of parliament.

“We don’t want to increase the consumption of gas,” insists Zünd. “But we do need to continue guaranteeing supply of this energy source that covers 12 per cent of Swiss needs. Gas will have an important role in Switzerland for a long time, as in the rest of Europe.”

This vision is not shared by Hofstetter. “At the political level we can perhaps understand that there is a need to reduce the power of Russia in the gas sector,” he says. “But from an energy and climate point of view, investments in new infrastructure for extracting and transporting fossil fuels no longer make any sense, when you think that the EU has brought in an ambitious programme to develop renewable energies and that Switzerland too is moving in this direction.”

Rival pipelines

Trans Adriatic Pipeline (TAP) is supported by a joint venture of the Swiss energy player Axpo (with a 42.5 per cent share of the capital), the Norwegian company Statoil (42.5 per cent) and the German company E.ON Ruhrgas.

TAP will be able to transport between 10 and 20 billion cubic metres of gas per year. Its cost was at first put at CHF1.5 billion, but will probably be a lot more in the end.

The Nabucco Gas Pipeline is promoted by a consortium of five players: OMV Gas & Power (Austria), FGSZ (Hungary), Transgaz (Romania), Bulgarian Energy Holding (Bulgaria) and Botas (Turkey).

This pipeline will be able to transport up to 30 billion cubic metres of gas a year. The costs are not yet quite clear.

(Translated from Italian by Terence MacNamee)