UPDATE: Hungary's MOL Latest To Rethink Nabucco

Hungary's oil and gas company MOL Nyrt (MOL.BU) Tuesday raised serious concerns about the viability of the Nabucco pipeline project, in yet another blow to an EU priority that's been hit by high costs and uncertain gas supplies.

"There are many uncertainties around the Nabucco project that would be hard to ignore. Both the financing background and the gas source are uncertain," the company said in a statement. MOL still supports diversification of suppliers but "we owe our shareholders the highest possible economic justification as well," it added.

MOL is now the second major shareholder to publicly reconsider its role in the Nabucco consortium, after Germany's RWE AG (RWE.XE) Chief Executive said earlier this year that it could scrap its plans for it. MOL and RWE are two of the main shareholders in the consortium and their failure to support the project would put in serious doubt its feasibility. Austria's OMV AG (OMV.VI) and three other companies are also part of Nabucco.

The company's statement follows remarks by Hungary's Prime Minister Viktor Orban Monday that MOL is leaving the project. A Nabucco statement said the consortium has no indication of a change in MOL's status.

"The Nabucco Pipeline project is based on a treaty that was signed and ratified by the transit countries, including Hungary," said Nabucco spokesman Christian Dolezal, in a statement. "The Nabucco shareholder in Hungary is FGSZ, a MOL subsidiary, and we have not had any indication that this will change," he said.

Nabucco was originally designed as a 3,300 kilometer-long pipeline project to bring Caspian gas to Austria across Turkey and most of central Europe with the aim of easing the region's dependence on Russian gas imports by opening up a "corridor" from Central Asia to the European Union.

But uncertainty about the amount of gas effectively available in the region for EU export by the end of the decade has dampened those expectations and prompted the consortium to scale down the project to roughly half its original size, ceding ground to competing projects.

The European Commission, which has executive powers in the EU, has strongly supported Nabucco as the best plan for such a corridor, but has recently been open to accept other projects, saying the priority is to get Caspian gas to Europe, rather than the specific infrastructure to do that.

Marlene Holzner, a spokeswoman for European Energy Commissioner Guenther Oettinger, said Tuesday the commission has no indication about MOL dropping out of Nabucco, and didn't comment directly on MOL's statement.

Azerbaijan and BP PLC --which has a leading role in the consortium developing the Azeri field which would provide the gas for the EU-- are working on two other, possibly complementary, pipelines that are in direct competition with Nabucco as they would follow a similar route.

The TANAP line would carry the gas across Turkey, while the South East Europe Pipeline would then take proceed through central Europe, possibly all the way to one of Europe's biggest gas hubs in Austria. The capacity of these alternative lines is roughly half that of Nabucco's.

Nabucco's prospects have also been challenged by the Russian-led South Stream pipeline, whose partners include European giants like Germany's BASF SE and France's Electricite de France SA. South Stream would not rely on the same Azeri gas, but would provide the commodity to the same end-markets in central Europe.

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

(Gergo Racz and Veronika Gulyas in Budapest contributed to this article.)

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