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It’s a Gas

As international competition to access energy resources heats up, the Nabucco project is looking to secure a new route for the transfer of natural gas to Europe.

Hailed as a potential savior for Europe’s energy security, the Nabucco pipeline is looking to jump off of the drawing board and into operations by 2017. Challenges remain, but the appetite remains intense amongst regional leaders.

The Nabucco pipeline project, first outlined in 2004, was conceived as a means to secure a stable supply of energy to Europe. The project is planned to transport gas from the Caspian region and Northern Iraq via Georgia and Turkey to the Baumgarten Austrian gas hub.

With 31 billion cubic meters (bcm) of capacity, the pipeline will supply 4% of Europe’s yearly gas needs. The pipeline will stretch 3,900 kilometers and link into the Baku-Tbilisi-Erzurum (BTE) pipeline, which currently transports gas from the Shah Deniz gas field in Azerbaijan to Erzurum in Central Anatolia.

The project is run by the Nabucco Gas Pipeline International consortium, including BOTAȘ, BEH, MOIL, OMV, RWE, and Transgaz. The consortium has recently signed various Project Support Agreements (PSAs) with ministries in the five transit countries—Austria, Bulgaria, Hungary, Romania, and Turkey—a milestone in the project’s timeline.

The construction of the pipeline is set to begin in 2013 and become operational in 2017. At present, the consortium is in a development phase, seeking reliable energy partners to achieve the annual gas capacity expressed in the memorandum of understanding that the consortium needs to make the project viable.

GROWING NEED

Expressed in the Green Paper produced by the European Commission in 2006, the Nabucco pipeline will provide urgently needed energy security and an uninterrupted physical availability of energy products to the market at affordable prices for all consumers, while respecting environmental concerns and targeting sustainable development.

The need for such a pipeline was highlighted following a series of interruptions in Europe’s once reliable supply network. In 2006 Russian state-owned gas giant Gazprom suspended gas shipments to Ukraine and Georgia, effectively reducing the supply to Austria, Hungary, and Italy, having a far-reaching economic and social impact on these nations. Again in March 2008 and in January 2009 disputes over gas prices and debt negotiations between Gazprom and Ukraine’s Naftogaz halted all shipments to and via Ukraine, affecting supplies to several European countries. It was in this light that a southern corridor from the Caspian Sea through the Caucasus and Turkey to Europe was identified as the best solution to ending Europe’s dependency on Russian gas, and the strong bargaining power that the situation grants. “The European Union has, for the time being, three main corridors of supplies of gas. We want to develop a fourth corridor—the south corridor, making Azerbaijan the key country for the development of this corridor and the first supplier of gas coming from the Caspian basin,” Mr. Roland Kobia, the Ambassador and Head of the EU Delegation to Azerbaijan told TBY. Azerbaijan has shown its support to the project via a joint declaration signed by both President Aliyev and José Manuel Barroso, the President of the European Commission, in January 2011, making Azerbaijan not only the first supplier, but also the enabler of the Southern Corridor.

COMPETITION & CHALLENGES

Currently, the consortium is looking for reliable gas supplies from Iraq, Egypt, and possibly Turkmenistan should the trans-Caspian pipeline be constructed, connecting Turkmen gas fields to Baku and then into the BTE and Nabucco, finally reaching the European market. According to an agreement signed on March 10, 2010 between the Azerbaijani government and RWE, Azerbaijan has outlined its current ability to provide between 8 and 10 bcm per year. In addition, a further memorandum of understanding for the supply of between 5 and 10 bcm was made with Northern Iraqi authorities.

A hurdle has been encountered in relation to commitments from certain parts of the Middle East, with a lack of infrastructure available to transport gas from Egypt to Turkey. However, the Egyptian authorities have, in the recent past, declared their availability to participate in the project, supplying 5 bcm per year. In addition, Egypt has expressed its interest to expand the Arab Gas Pipeline to Turkey and connect its gas fields to the European network. So far this pipeline has been extended only as far as Syria, and progress has since stalled.

Russia’s Gazprom and its partner ENI also envisage a pipeline transporting Russian gas across the Black Sea to Bulgaria, then on to Greece, Italy, and Austria, thus providing direct competition to the Nabucco project.

A shifting of focus eastward could also influence the development of the Nabucco pipeline, with China and India showing increasing interest in Central Asian gas. In December 2009 a pipeline with a yearly 40-bcm capacity was inaugurated, and now transports gas from the Turkmen, Uzbek, and Kazakh gas fields to China.

Despite these challenges, Taner Yıldız, Turkey’s Minister of Energy and Natural Resources, told TBY, “I truly believe that this project will be of great benefit to all participating countries, especially in terms of creating new jobs. The next step is to conclude financial negotiations and agreements with producer countries.” In early June 2011, the partners in the Nabucco project signed a Partnership Support Agreement in the Turkish city of Kayseri, in a further move to advance progress on the long-delayed project. However, until additional supplies from other nations are secured, the Nabucco project will remain on the drawing board.