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June 28 (Reuters) - (The following statement was released by the rating agency)
A decision on Friday to route Caspian natural gas to Europe via the Trans Adriatic Pipeline through Greece and Italy means the new supplies will probably not add to downward pressure on European gas prices, Fitch Ratings says. The rejected alternative pipeline through Eastern Europe could have had a modest impact on prices due to its higher capacity and by helping diversify supplies in countries that are almost exclusively reliant on Russian gas.
The pipeline chosen by the BP-led Shah Deniz II consortium operating in Azerbaijan will have annual capacity of 10 billion cubic metres (bcm), around 2% of European gas consumption. This is unlikely to be enough to affect prices across the region. The pipeline will terminate in Italy, which is already well supplied with natural gas from sources including Russia, Algeria and Libya. This means it has the infrastructure to enable distribution of Caspian gas to the rest of Europe, but is unlikely to receive any significant local benefit from further diversification of supply.
The rejected alternative, known as Nabucco West, had the capacity to carry up to 23bcm of gas to Europe every year through the inclusion of potential gas from Romania. While this would have had a greater potential to affect prices, the likely impact had already been significantly reduced by an earlier decision to cut the proposed capacity from 31bcm. Nabucco's proposed route through Bulgaria, Romania and Hungary would also have improved energy security for these countries, which are highly dependent on Russian gas. There are still several other factors that may help push prices lower, including spillover effects from the US shale gas boom, the focus on renewable energy sources and weak economic growth prospects in Europe.
The decision is mildly positive for the credit profile of Russia's Gazpom as Nabucco West would have been in closer competition with its 63bcm South Stream pipeline, under construction since December 2012. The decision is negative for OMV, one of Nabucco West's main shareholders, but the impact is limited because natural gas only represents a small fraction of its earnings.
Plans for Nabucco West have not been abandoned as it could be redesigned to transport natural gas from the Black Sea to Europe. But it is unclear whether the Black Sea gas reserves are sufficient to justify even a scaled-down version, and we believe oil and gas companies may therefore seek alternative ways to monetise this gas locally.
