Nabucco would reduce Europe’s dependence on Russian natural gas delivered through Ukraine. Last winter’s supply disruption, which emanated from the traditional year-end Moscow-Kiev virtual fist fight over who violated elementary business ethics, was the most recent reminder of just how important this goal is.
Gas from Russia covers 24 percent of EU and 41 percent of European (EU-27 plus non-EU Balkans plus Switzerland) consumption. About three-fourths of this volume goes over Ukrainian ground before reaching customers across the continent, according to the International Energy Agency (IEA).
Nabucco (a consortium of Austria’s OMV, Bulgaria’s BULGARGAZ, Germany’s RWE, Hungary’s MOL, Romania’s TRANZGAS and Turkey’s BOTAS) would rely on Caspian and Mideastern supplies. Its 2050-mile long, 31-billion-cubic-meters-per-annum (bcm/y) pipeline would link collection point Erzurum (Turkey) with the Baumgarten (Austria) hub through Bulgaria, Romania, and Hungary. Operations with limited capacity should commence in 2013 or 2014.
Although the system would satisfy only a fraction of Europe’s long-term demand for gas, it would protect the former Eastern Block from being plunged into conditions reminiscent of Lenin’s “war communism” as a result of acrimonious haggling among Soviet successor states.
Nabucco is also expected to force a modicum of competition on Gazprom. At present, the tsar of all gas companies can price according to “ability-to-pay” — the most telling sign of unmitigated international monopoly power.
If all those millions who shivered in unheated homes across Eastern and Southeastern Europe, and the tens of thousands who were sent home from factories during the first three weeks of 2009 could sing; the heart-swelling chorus of Verdi’s Nabucco’s would fill the air.
Yet after much diplomatic preparation and technical work since the project’s 2002 inception, doubt persists about whether earth machines will indeed start up next year or in 2011, or at all.
Budapest-Sofia-Prague — It’s a long, long way to go to Ankara.
The Budapest Conference (January 27-28) was the last major event in Nabucco’s troubled history. The next one will be the Sofia summit in April, followed by the EU’s Prague energy security forum in May.
The main achievement of the Budapest Conference was that the impressive roster of attendees declared continued support for the project. In addition to top office holders from consortium members (Austria, Bulgaria, Germany, Hungary, Romania and Turkey), potential suppliers (Azerbaijan, Egypt, Iraq, Kazakhstan, and Turkmenistan), and transit country Georgia (the passage way for Afghan gas to Turkey), the EU showed up in full regalia. It was represented by the Czech Republic (which holds the Union Council’s rotating presidency in the first half of 2009), Brussels’ energy commissioner, the European Bank for Reconstruction and Development and the European Investment Bank. Russia sent the chairman of Gazprom and a ranking State Department official represented the United States.
The closing declaration reconfirmed commitments but no contracts were signed.
Nabucco will once again be center stage during the April 24-25 energy summit dubbed “Natural Gas for Europe: Security and Partnership” in Sofia, Bulgaria. U.S. President Barack Obama, French President Nicolas Sarkozi, and Russian Premier Vladimir Putin may be among the dignitaries (Novinite.com, Nov. 6, 2008).
A meeting of this composition could not avoid the subject of Iran.
Nabucco officials make no secret of their conviction that the project’s viability critically depends on Iranian supplies. The Caspian country, which disposes over the world’s second largest gas wealth after Russia, volunteered to feed Nabucco, but the offer was declined. Western sanctions — prompted by Tehran’s defiant and potentially threatening nuclear policies — limit trade with the Islamic state. But tensions appeared to ease in recent months and a breakthrough at the scheduled meeting cannot be discounted.
If Nabucco survives Sofia, the EU’s cabinet-level “Southern Corridor Summit,” which will be held in Prague on May 7th, will be the next hurdle. Unless the project garners enough financial and political support in the Czech capital to eliminate skepticism about its future among consortium members, potential suppliers, buyers, and investors, it will continue to linger in the misty realm of the undead.
Early signs are not good. “Southern Corridor” in the Prague event’s title by itself implies that Nabucco has been deprived of its previously taunted flagship position in European efforts aimed at energy security. Even worse: German Chancellor Angela Merkel publicly objected to extending EU financial support for the project (EurActiv, March 3).
According to the current schedule, consortium members and suppliers should attach binding signatures to an intergovernmental pact in Ankara, Turkey, sometime in mid-2009. That festive affair seems far away indeed.
Protestation by all parties notwithstanding, Nabucco is detrimental to Gazprom, and the joint-stock behemoth does not appreciate being crossed any more than did Lucretia Borgia. Like the legend of renaissance poison plots, it has concocted a potent recipe.
A venom called South Stream
Central to Moscow’s strategy to disable Nabucco is an alternative pipeline system, called the South Stream. Launched jointly by Gazprom and ENI (Italy’s powerful utility conglomerate), it would skip Ukrainian territory but would explicitly bolster Russia’s hold over Europe’s energy sector.
South Stream plans to start pumping in 2015 via a Sub-Black Sea-Bulgaria-Greece line to Serbia. From there, one branch would lead to Italy through Croatia and Slovenia, and the other to the Baumgarten storage and distribution center through Hungary. The initial throughput capacity of 31-bcm/y could be significantly extended by additional investment.
Austria’s OMV, which operates Baumgarten, is in joint venture with Gazprom. Bulgaria and Hungary have signed agreements for the implementation of South Stream.
Greece is also in and Gaz de France’s offer to participate has been graciously accepted.
South Stream and Nabucco compete head on. If one is built, the other becomes redundant. Consequently, what is good for South Stream in terms of support is bad for Nabucco and vice versa. At present, South Stream appears to be pulling ahead.
Italy and France are South Streamers. Germany, whose gas supplies will be assured by Gazprom through the currently constructed North Stream, is unlikely to provide active support. It may even have been jawboned into subtly opposing Nabucco despite RWE’s presence in the consortium. And the UK, where less than 10 percent of Gazprom’s European sales go, may be neutral.
The answer to the question “What chances does a project that depends on Brussels’ financial backing have if three out of the EU budget’s largest gross contributors oppose it and the fourth is indifferent?” is obviously “Very little.”
Eurasian gas politics — Machiavelli is alive and well
Enfolded in intrigues, ruthless opportunism and bold-faced betrayal, the struggle for natural gas supplies, as well for the benefits obtainable from its sale by producers and/or intermediaries, is bewildering.
Look at South Stream a little closer and it will become a mere gleam on Kremlin’s golden onion domes. It doesn’t even have a feasibility study and when it does, it promises to deliver a sticker shock. Its supplies are uncertain in light of Gazprom’s ballooning delivery commitments and doubts about Russia’s ability to live up to them from strictly domestic sources. And it is simply impossible to construct the line without the consent of recently roughed up Ukraine and Nabucco member Romania. The two countries control sections of the Black Sea continental shelf where the pipe should be laid.
Do South Stream enthusiasts, well aware of these problems, feign support just to please all powerful Gazprom? Did Nabucco members who signed up for it only pretend to drink from the chalice? Is the generalissimo of gas fields — knowing all this — prepared to accept Nabucco, provided it would be a conduit for Russian or Russian-controlled sales? This could be achieved by building up Southeastern Europe’s pipeline network to include Serbia, whose energy company (NES) has recently slipped into Gazprom’s portfolio.
Iranian gas flowing through Nabucco would also benefit Gazprom. It has sunk serious capital in the development of Persian fields, a circumstance that explains Russian advocacy to open up Europe to Iranian gas.
Nonetheless, it would be a mistake to conclude that the world is Moscow’s oyster. Far from it. The much feared sway it is supposed to hold over gas-producing Caspian and Central Asian countries is incomplete and elusive. The region’s newly independent states are artfully double-crossing their old colonialist; and Europe, while openly or covertly supporting Nabucco nemesis South Stream, encourages them. The Prague meeting in May, for example, will also serve as a venue to enhance EU relations with half-a-dozen former Soviet Republics, namely Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.
As the development of East-West technical cooperation and cross-broader investment to exploit gas reserves descends into a precarious zero-sum game, an additional complicating element rises on the horizon: The conflict of continents.
Given that Western Siberia and Turkmenistan will be connected to the Middle Kingdom’s grid, China and Europe began to scramble for the same resource. India, the other budding economic superpower, also counts on Central Asian reserves. It supports the construction of a line that would connect its expanding gas network with Turkmen fields via Afghanistan and Pakistan.
But back to the European market.
Nabucco and South Stream both compete with other projects for supplies, customers, investment capital, and EU support.
The 372-mile long, 11.5-bcm/y-capacity “Turkey-Greece-Italy Interconnector (ITGI)” stakes a further claim on Caspian and Mideastern gas. The Turkey-Greece leg is already in operation; the Greece-Italy section, which includes a 136-mile undersea stretch, is yet to be built. The system should start up in 2012. Bulgaria expressed interest in joining ITGI and other countries in Southeastern Europe may follow suit.
The “Trans-Adriatic Pipeline” (TAP), another link between Turkey’s and Italy’s grids, also hopes to use Caspian and Mideastern reserves. The 323-mile long pipe would go through Greece and Albania and, after plunging into the Adriatic Sea for 71 miles, it would come ashore in the heel of the Italian boot. Snaking up through the peninsula’s main artery, it would serve customers in Western and Central Europe. TAP, now in an advanced stage of planning, is scheduled to begin operations in 2012. Its throughput of10 bcm/y could later be doubled.
Introduced by the Ukrainian government, the White Stream (Georgia-Ukraine-EU Gas Pipeline) proposes to transport Caspian (mainly Azerbaijani and Turkmen) gas to Europe. The Turkmenistan-Sub-Caspian Sea-Azerbaijan-Georgia-Sub-Black Sea-Ukraine (Crimean Peninsula) line would enter EU territory through Poland and Romania, eventually reaching the Baumgarten distribution center. The transportation of LNG in tankers across the Black Sea would be an alternative to laying pipes on the seabed.
If the long-contemplated Trans-Caspian Gas Pipeline is built, White Stream’s capacity could reach almost four times its currently envisaged 8 bcm/y.
Kiev counts on the EU to arrange for supplies and to push through the ailing Trans-Caspian project. Surprisingly, since according to Russian sources Ukraine’s unreliability as a commercial partner is the culprit behind disrupted gas deliveries, the White Stream has developed respectable European business support and received hearing in Brussels.
White Stream competes with both Nabucco and South Stream. Keeping it alive, some observers maintain, is a way to exert leverage on Ankara, which wants to make Turkey the key intermediary and omnipotent gate keeper of Caspian, Central Asian, and Mideastern gas headed to Europe. Such a role would provide Turkey with an oversized chip in its stalemated bargain for EU membership.
With a capacity of 30 bcm/y, the “Trans-Caspian Pipeline” (TCP) would link Turkmenistan with Azerbaijan. By connecting Kazakh fields with Turkmenistan, TCP would become the main route for Central Asian gas traveling to Europe. Construction is supposed to begin this year. The project would help Nabucco but it faces Russian and Iranian opposition. The two countries could delay it indefinitely through legal proceedings because of the alleged environmental impact on the Caspian Sea.
The combined capacity of these projects (including Nabucco and South Stream but excluding the intermediary Trans-Caspian line) could reach 125 bcm/y in 10 years. This number is well within Europe’s estimated import potential by 2020, but it is unlikely that all proposed schemes will see the day of ribbon-cutting.
Poor conditions for developing gas infrastructure
Private capital became reticent in the wake of the still roiling international financial crisis, and last year’s military conflict between Russia and Georgia has dampened enthusiasm, especially for ex-Soviet Eurasia. Investors will think long and hard before committing capital to a part of the world where unsettled aspirations may make caterpillar armored vehicles trample over pipelines accidentally or intentionally.
The recession reduced demand for gas; its price is relatively low. Faith in the global economy’s future recovery, in the certain restoration of demand for gas and the flow of revenues obtainable from its sale may not be able to counteract the weight of prevailing reality. The “now” exerts a radical influence on business decisions.
This seems like an apt opportunity for governments to step in and bridge the gap between momentary private discouragement and long-run public interest. But, exhausted from bailouts and economic downturn-induced deficits, government finances are panting on the ropes. European states and the EU are unlikely to scale up direct funding or investment insurance to develop gas reserves.
Much effort will be lost amidst all this push and pull, aggravated by complex gamesmanship where gestures of indispensable cooperation are suspected of being no more than bluffs to cover assertive competitive strategies. Gas delivery plans, fought over, kicked around, but never officially cancelled, bring to mind the words of General Douglas MacArthur. To paraphrase: “Old pipeline projects never die; they just fade away.”
