UPDATE 3-TAP to carry Azeri gas via Greece as Austria loses out

Wed Jun 26, 2013 11:49am EDT

* BP, Statoil lead development of Shah Deniz II gas field

* Plans call for flows to Europe from 2019

* Nabucco West pipeline not chosen, OMV says

* Official announcement awarding project to TAP expected Friday

* TAP project will cross Greece, Albania

By Georgina Prodhan and Karolin Schaps

VIENNA/LONDON, June 26 (Reuters) - The group developing Azerbaijan's vast gas reserves has chosen the Trans Adriatic Pipeline (TAP) via Greece to link to Europe, officials said on Wednesday, defeating the Nabucco West consortium which had backed a route to Austria.

The project, first envisioned more than a decade ago, reflects a European Union push for alternatives to Russian gas imports and is expected to start flowing in 2019.

The leading company in Nabucco West, Austria's OMV , said it had been told that higher gas prices in Greece and Italy had tipped the decision in favour of TAP.

"The Nabucco project is over for us," OMV Chief Executive Gerhard Roiss told a news conference after the company announced it had not been selected, putting to rest the suggestion Nabucco could also be built eventually once more Caspian Sea gas becomes available.

The company said the Nabucco partners would evaluate over the next weeks whether to build a pipeline for OMV's own gas from the Black Sea, potentially its biggest gas find ever.

TAP is fronted by Norway's Statoil, Swiss company AXPO and E.ON Ruhrgas of Germany.

It declined to comment ahead of an official announcement expected on Friday but sources from companies and governments involved said TAP had been chosen.

The TAP pipeline will collect Azeri gas in Turkey and carry it across Greece and Albania before reaching southern Italy, stretching 870 kilometres (540 miles).

Nabucco West was more ambitious, tracking a 1,329-kilometre route north from Turkey to Austria via Bulgaria, Romania and Hungary.

Neither group publicly announced costs, but TAP due to its shorter route was widely considered the less expensive project.

BP, Statoil and state energy company SOCAR are leading development of Azerbaijan's vast Shah Deniz II gas field in the Caspian Sea, one of the world's largest.

SOCAR emerged last week as sole bidder for Greece's gas network, a fact which analysts said helped TAP's position.

The pipeline is expected to pump 6 billion cubic metres (bcm) of gas per year to consumers in energy-hungry Turkey and 10 bcm per year to Europe.

The EU's total annual consumption tops 400 bcm.

More than 15 companies have lined up to buy the gas, the Shah Deniz consortium has said.

The European Union had initially favoured the Nabucco project and then the slimmed down Nabucco West concept but in recent months has taken a neutral stance.

"It will mean greater liquidity and greater security of supply; the opening up of additional supply to Greece and Italy," Philip Lowe, head of the European Commission's energy directorate, said on Wednesday.

Europe is looking to Azeri gas to ease its dependence on Russian supplies, which currently account for around 30 percent of all EU gas imports. The figure rises to nearly 100 percent in some EU states, such as Bulgaria and Lithuania.

Europe, where gas demand is projected to rise by 20 percent by 2035, according to the International Energy Agency, also needs to safeguard supply in the face of rising Asian buying.

Yet economic recession and more use of alternative energy sources have dampened European demand in recent years, prompting some experts to express concern about securing additional supply.

In response to Europe's quest for Caspian supply, Russian gas export monopoly Gazprom has put forth its $39 billion South Stream project which would pipe gas to northeast Italy through the Black Sea.