Shah Deniz, the consortium developing a natural-gas field offshore Azerbaijan, has narrowed down its options to carry that gas to Europe, the first major decision in a years-long process that is key for Europe's strategy of diversifying energy supplies.

The consortium has excluded the Interconnector Turkey-Greece-Italy, or ITGI, pipeline project from those being considered to transport the gas to Europe, energy giant BP PLC (BP, BP.LN), which has a key role in Shah Deniz, said Monday. This means that another, similar project called Trans-Adriatic Pipeline, or TAP, will be negotiating exclusively to transport the gas from the Caspian to Italy.

"The Socar-led [Azerbaijan's state-controlled energy company] negotiating team has made the decision to undertake exclusive negotiations with TAP on a southern pipeline route through Italy," a spokesman for BP told Dow Jones Newswires. The decision means that ITGI's proposal "will not be considered further," he explained.

The issue of natural-gas transportation from the Caspian to Europe is key for the European Union's aim of opening a "corridor" from Central Asia, across Turkey, and getting new suppliers in an energy-rich region to ease its dependence on Russia's natural gas. This latest news means the consortium is making real progress toward a final decision in the process, after years of fierce battle among different pipeline projects.

Two other projects, Nabucco and the South East Europe Pipeline, or SEEP--both designed to carry the gas to Central Europe--are still in the competition, the BP spokesman said.

The next decision will be between Nabucco and SEEP, which is partially supported by BP. "Once that [decision] is done, it will be possible to make a decision between a northern [to Central Europe] or southern [to Italy] pipeline route," said the spokesman.

The news is a blow for Italian energy company Edison SpA (EDN.MI) and Greek natural-gas company DEPA, the two sponsors behind ITGI, that have spent huge resources in promoting it.

The financial situation in Greece and Italy, together with technical considerations about the pipelines, were some of the reasons behind the decision, a person familiar with the talks told Dow Jones.

However, Edison reaffirmed its commitment to the ITGI pipeline project.

"Edison confirms its commitment to continue the development of the ITGI pipeline as the most advanced option for the timely and most efficient opening" of the natural-gas corridor from the Caspian to Europe, the company said in a statement. A company official also confirmed that Edison received a formal communication from the Shah Deniz consortium.

The Italian and Greek governments also reiterated their support for ITGI.

The Italian industry ministry said, speaking also on behalf of the Greek government, that ITGI is "the most advanced and mature" among the pipeline proposals. The two governments said that talks should continue to "explore every alternative" to the opening up of the gas corridor from the Caspian to Europe.

ITGI would carry gas from Greece to southern Italy, bypassing Albania. TAP would do the same, but without bypassing Albania. Its sponsors are Swiss energy-trading company Elektrizitats-Gesellschaft Laufenburg AG (EGL.EB), Germany's E.ON AG (EOAN.XE, EONGY) and Norway's energy giant Statoil ASA (STL.OS, STO), which is also one of the two main shareholders of the Shah Deniz consortium.

"We firmly believe that TAP remains a strong contender to win the bid to transport Shah Deniz II gas to Europe," Kjetil Tungland, TAP's managing director, said in a statement. "We are also confident that the TAP route to Italy offers the Shah Deniz consortium the most attractive market and the most advanced evacuation route," he explained.

Shah Deniz II is expected to add roughly 16 billion cubic meters of annual production as early as 2018, 10 billion cubic meters of which would be ready for export to the EU. BP and Statoil both own 25.5% stakes of Shah Deniz. The State Oil Co. of Azerbaijan, or Socar, Russia's OAO Lukoil Holdings (LKOH.RS, LUKOY), France's Total SA (FP.FR, TOT) and National Iranian Oil Co. all own 10% each, while Turkish Petroleum Corp., or TPAO, owns 9%.

-By Alessandro Torello and Alexis Flynn, Dow Jones Newswires; 32-2-741-14-88; alessandro.torello@dowjones.com

--Liam Moloney contributed to this article.

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