Europeans, heavily dependent on Russian natural gas, would like to diversify their sources. The Eurasian hydrocarbon superpower charges too much and its geopolitical self-image, in which the entire former communist empire appears as its natural and inalienable interest sphere, keeps rubbing against Western sensibilities about just what exactly independence for former Soviet republics means — a disagreement loaded with negative implications for EU energy security.

The Nabucco project is intended to bring relief on both counts. By relying on Caspian and Mideastern gas, it would generate competition for quasi-monopolist Gazprom. And by laying its 2,100-mile long, 56” diameter pipeline — with a carrying capacity of 31 billion cubic meters per annum (bcm/y) — from Turkey to Austria, via Bulgaria, Romania, and Hungary, it would mitigate EU’s exposure to being disciplined and punished through Gazprom pricing and/or supply policies, should a political tiff with Russia arise.

The interlocked system of Moscow-headquartered, state-controlled energy cartels is widely regarded as the shield and sword of Russian foreign policy. When its senior executives clear their throats, a whole continent listens.

Nabucco awakens bad memories and suspicions but pressing needs may trump them.

The name itself is cause for head-scratching. It is the title of Verdi’s 1842 opera whose stirring “Chorus of the Hebrew Slaves” steeled the will of a generation of Italians determined to fight off Austrian military occupation. The commendably cultured intention to draw on the name’s symbolic power in Europe’s struggle against domination in the energy field may have backfired.

Nabucco Gas Pipeline International was initiated by Austria’s OMV Gas & Power, Inc. — the country’s largest industrial firm with commanding influence over Central and Southeastern Europe’s oil and gas business. It is seated in Vienna and its key managerial positions are filled with Austrian nationals. Rumors persist that OMV wants to take over MOL, Nabucco’s Hungarian partner, and INA, Croatia’s energy firm.

There is already considerable grumbling about Vienna’s growing presence in the economies of the former Hapsburg Empire. Nabucco reminds the area’s population that Moscow may not be the only capital where coming to grips with the loss of imperial hegemony proves to be exceedingly difficult. Fears that a tacit sympathy may exist between Vienna and Moscow haunt populist imagination. Recently announced negotiations among the Vienna Stock Exchange, OMV, and Gazprom to set up a marketing facility for Russian gas at Austria’s regionally important Baumgarten gas terminal (Vilaggazdasag, November 5) did not help alleviate such suspicions.

In the age of relatively free movement of international capital, particularly in the cross-border-investment-promoting EU legal framework, the only remedy for such irritation is to compete within the “rules of the game.” This is exactly what Budapest is doing but its principal motivation is not to appease anxieties about shots being called from Vienna’s corporate boardrooms instead of from Schonbrunn Castle like a hundred years ago.

The main reason why a rare unison between Hungary’s ruling neoliberal (“All Power to the Markets”) Socialist Party and its vocal opposition has turned Prime Minister Ferenc Gyurcsany into Nabucco’s mover-shaker is the country’s unique dependence on Russian natural gas. Gazprom covers 60 percent of Hungarian consumption, more than twice the EU average. After Germany, Italy, and France, Hungary is the blue fuel oligarch’s fourth largest Union customer.

Worries about Nabucco are closely tied to clear signs that Hungary’s wide open economy is in serious trouble. A monetary crisis getting out of hand with ominous consequences for the multinational banks and industrial corporations happily ensconced on the banks of the Blue Danube has been narrowly averted through a massive infusion of capital from the EU, IMF, and The World Bank. But the coffers of these organizations are getting depleted and the Hungarian economy needs to be urgently shored up to reduce the risk of becoming another spoke in the already badly jammed wheel of international credit. Bankers and industrialists, multilateral organizations and concerned governments eagerly nod their heads at efforts to maximize the country’s energy security while minimizing its gas bill.

To address the project’s problems, reaffirm existing commitments, and gain new sponsorship for its implementation, Premier Gyurcsany has engaged in a diplomatic flurry that will culminate in the Budapest “Nabucco Summit” at the end of January 2009.

In addition to consortium partners (Austria, Bulgaria, Germany, Romania, and Turkey), potential suppliers Azerbaijan, Egypt, Iraq, and Turkmenistan, and transit country Georgia are also invited. The EU will be represented by its energy commissioner and the Czech Republic, which will have the Union’s rotating presidency next January.

Present or not, Iran will be at the center of attention.

While some experts maintain that Azerbaijan, Turkmenistan, and Iraq could keep Nabucco’s pipeline filled for the duration, others are doubtful about the availability of sufficient supplies from these countries and argue that the project’s viability critically depends on Iranian gas. Top Nabucco officials subtly build consensus on this point. The “God’s State” contains 15 percent of the world’s confirmed gas reserves (second only to Russia’s 28 percent). While these riches have remained largely undeveloped to date, there are multiple and conflicting claims on Caspian and other Mideastern gas.

The double “two thumbs up” for Nabucco by the U.S. and the EU, with the importance of Iranian supplies for the project in broad daylight, fuels speculations that an imminent change in Western policy toward Iran may be in the offing. The level of U.S. and Iranian delegations to the planned summit will be a geopolitical bellwether.

The Iranian wildcard is not alone among the uncertainties that weigh heavily on the minds of Nabucco enthusiasts. Many contend that Gazprom could sink the project lock, stock, and barrel by luring away its potential investors and customers, or destroying its “raison d’etre” by becoming one of its suppliers. Moreover, Russian grip over Europe’s energy economy is expected to tighten in coming decades — Nabucco or no Nabucco.

And then there is the nasty problem of finding capital — not an easy task in times when Polonius’ fatherly advice “Neither a borrower nor a lender be” is devastating private investment-driven infrastructure development.

Consortium partners have a combined equity interest of 30 percent. This means that 70 percent of the project’s well-over $10 billion construction costs will have to be covered by subscriptions from the international capital market.

The situation is difficult but not hopeless.

Gazprom’s exorbitant price-to-cost ratio leaves room for the profitable operation of new entrants into Europe’s gas market. Unlike oil, natural gas is not traded on an integrated world market — at least not yet. Hemispheres are separated by the impracticability of transoceanic pipelines and underdeveloped infrastructure to transport liquefied natural gas (LNG) in tankers. Thus, above-average profits earned from gas sales to Europe will last long enough to recover capital sunk into Nabucco.

No less importantly, investors doing due diligence right now must also recognize that Nabucco would not cause a gas glut.

Combining the current level of 137 bcm/y Russian sales to the EU (derived from 2007 Gazprom statistics) with the 100 bcm/year capacity additions that “North Stream,” “South Stream,” and “Blue Stream” could bring, one gets 237 bcm/y. (At present, Russian gas reaches European customers mainly through the Ukraine-Slovakia-Czech Republic and the Belarus-Poland routes. Gazprom is engaged in expanding its delivery capacity while diversifying away from this pattern through the above-mentioned systems.)

Adding Nabucco’s 31 bcm/y to the capacities of other projects designed to take a bite out of Gazprom’s fat profits – i.e., the “Turkish-Greek-Italian Gas Connector” (under construction), the “Trans-Adriatic Pipeline” (in advanced planning stage), and the “White Stream” (proposed) — yields ca. 94 bcm/y.

The sum of Gazprom and Gazprom-competing capacity expansions is 331 bcm/y (237 bcm/y plus 94 bcm/y). Although this figure is well within EU’s projected demand for imports by 2030, Eurasian and Mideastern gas will have to compete increasingly with supplies from North Africa (perhaps even from Sub-Saharan Africa) and with LNG that could originate anywhere.

Nabucco consortium and its supporters need to take a deep breath. They have their work cut out for them.