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05.02.09
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The Pipeline Duel
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By Sergei Balashov
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At last week’s Nabucco summit, the European Union took decisive steps by pledging the firmest possible political support for the project, in order to disperse any doubts that its intention to build a pipeline whose sole purpose is to supply Europe with non-Russian gas is indeed real. This week, the story took an unexpected turn. The Director of the Nabucco project Reinhard Mitschek said that the Nabucco consortium was open to Russia’s participation, and was ready to negotiate.
Two days before, it was reported that the European Parliament was considering inviting Russia to join Nabucco, with this proposal included in a report drafted for the EU energy security review.
Russia has been working on its own pipeline dubbed South Stream, which targets Italy and Austria, while Nabucco is supposed to run from Turkey to Austria. The two are perceived as rivals, and the Russian leadership has on more than one occasion voiced concerns over the feasibility and viability of Nabucco, as the consortium comprises only transit countries, and not a single producer. This could be the main reason why Russia came into the picture.
The Nabucco pipeline was conceived in 2002 and strongly backed by the United States as a means to free Europe from excessive Russian influence, since Russia has been the source of almost half of the gas the EU consumed.
Despite facing numerous challenges, the project has been gradually taking shape. But while political support was ample, funding still remained a problem. Last week, Reuters reported that the EU is prepared to commit more than $4.6 billion to energy projects, including about $328 million for Nabucco, which will require almost $8 billion to be built. Inspiration for this spending spree on energy security, with a part of it specifically aimed at speeding up the construction of Nabucco, came from the winter dispute between Russia and Ukraine, which once again severed Russian gas supplies to Europe.
Central Asian countries have been considered the key producers which could provide the 30 billion cubic meters necessary to fill Nabucco and diversify Europe’s energy supplies. Turkmenistan’s and Kazakhstan’s having participated in last week’s summit was seen as a positive signal that both countries were ready to cooperate. The Azerbaijani President Ilham Aliyev stated that his country is prepared to double gas production in order to participate in Nabucco. At the same time, he pointed out the need for transit contracts with EU countries, as well as funding and a clarification of the EU’s energy policy.
The two other possible alternatives are Iran and the U.S.-backed Iraq. The former would hardly provide Europe with more energy security than Russia does, while the latter is still a very distant possibility.
Gas from Kazakhstan and Turkmenistan is already exported to Europe, but it goes via Russia, which imports it and then resells it to consumers. Turkmenistan has recently signed a new deal with Russia, and has a 30-year-long commitment to pump 30 billion cubic meters of natural gas annually to China, limiting the amounts of gas it would be able to transport through Nabucco.
In any case, Russia and Iran are going to have leverage in the project, since both are members of the Caspian treaty and their approval would be necessary to lay pipelines across the Caspian Sea. “If Nabucco pumps Central Asian gas, Iran would not be happy, as they have their own gas to sell and they openly speak about it,” said Andrei Kochetkov, a commodity analyst at RosFinCom.
Turkey would be a key transit country for Nabucco, and this could also be a problem. The country, which is aspiring to EU membership, could be tempted to use the pipeline as a bargaining chip to speed up its integration with the union. On top of this, the Turkish Prime Minister Tayyip Erdogan has said that his country would rethink its participation in Nabucco if the energy portion of the EU accession negotiations is not unblocked.
The uncertainty entailed by these diversification options seriously undermines their feasibility. “We shouldn’t just move away from Russia without knowing where we are going. If we just exchange Ukraine for Turkey, we will still have all our eggs in one basket,” commented Andrew Monaghan, a researcher at the NATO Defense College in Rome, in a report published by the European Parliament.
Russia could make significant gains from scrapping South Stream and turning to Nabucco instead. The two pipelines have been seen as rivals, and the Czech Prime Minister Mirek Topolanek called South Stream a “direct threat” to Nabucco. The pipelines are going to have the same capacity, and both are scheduled to begin operating in 2013. However, it has been estimated that South Stream could end up costing twice as much as the $8 billion Nabucco. Acting as a major or even the sole gas producer could also help Russia to retain its influence over Europe, marking for a significant gain on the political side.
Russia’s participation is a distant shot, but Europe’s bewilderment suggests the plans to end dependency on Russia may be doomed to fail. “The goal was to completely sideline Russia from Nabucco, but there is such a thing as fate. Russia and Europe—we have the goods, and they have the money, and we’ll have to cooperate, maybe even within Nabucco,” said Kochetkov. |
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