German utility RWE AG (RWE.XE), a member of the consortium that plans to build the natural gas pipeline Nabucco, said Tuesday it no longer expects gas supply deals with Azerbaijan and Turkmenistan will be signed in the first half of 2010 in light of pending political agreements.

Stefan Judisch, chief executive of RWE's supply and energy trading unit also ruled out that costs for the 3,300 kilometer pipeline would rise above the currently forecast EUR7.9 billion.

Judisch said that the consortium is reviewing the costs of the project, adding that they're "more likely to fall than rise".

Lower construction costs would primarily be the result of an alternative feeder pipeline that would connect gas fields in north Iraq to the Nabucco project, he said.

Nabucco shareholders OMV AG (OMV.VI) of Austria and Hungary's MOL Nyrt (MOL.BU) own a combined stake of around 20% in two northern Iraqi gas fields.

Construction costs could be reduced by extending an existing pipeline operated by Turkey's Botas to feed Nabucco with gas, Judisch said. This option is being examined, he said.

Iraq and Turkmenistan are the most likely initial supply sources for Nabucco. Azerbaijan is also expected to be a supplier for the project.

The original target of striking supply deals with Azerbaijan and Turkmenistan is now unlikely to be reached, said Judisch.

"We expect to reach results [in terms of supply deals] in coming months," he added.

Judisch added, however, that a final investment decision is still expected to be made before the end of the year and first gas will likely flow in 2014.

Judisch said that Turkmenistan has repeatedly reassured that it will stick to its commitment to supply Nabucco with gas. He added, however, that Turkmenistan has subsequently expressed its desire to "safeguard" its supply commitment via a bilateral agreement with Germany.

Judisch said that such a procedure was understandable for a country that is in the process of drastically altering its energy export policy.

Turkmenistan--a former Soviet republic--has a long history of supplying gas to Russia, but is seeking to diversify its gas exports in deals with customers in Europe and Asia.

RWE's Judisch also said that there have been "positive signals" in terms of Nabucco gas supplies from Azerbaijan, which appears to be nearing an agreement with Turkey over the pricing of existing gas deliveries. Azerbaijan supplies around six billion cubic meters of natural gas to Turkey.

Such an agreement could pave the way for a deal over gas supplies for Nabucco, Judisch said, adding the two countries could sign such an accord in May.

The pipeline, slated to transport gas from the Caspian region to central Europe via Turkey and Austria, is considered crucial to secure Europe's growing demand for natural gas as domestic supply is steadily falling.

With a planned capacity of up to 31 billion cubic meters of gas a year, Nabucco would further diversify Europe's supply sources, bypassing traditional pipeline routes for Russian gas.

The Nabucco consortium comprises German utility RWE, Austria's OMV, Hungary's MOL, Turkey's Botas, Bulgaria's Bulgarian Energy Holding and Romania's Transgaz.

Company website: www.rwe.com

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com
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