Tuesday, January 27, 2009

Curtains Rising or Falling on Nabucco?

Named after a popular Verdi opera that tells the story of the Jews’ liberation from exile in Babylon, the troubled Nabucco pipeline project – designed to wean Europe off its dependence on Russian gas – has enough drama surrounding it that it could very well inspire an opera production of its own. There would be villainous Russians, cantankerous Turks, bumbling Brussels bureaucrats and a chorus of shivering Bulgarians begging to be delivered from clutches of Gazprom.

The 12$ billion, 2,050-mile long (3,300 kilometer) pipeline is designed to bring gas from the Caspian region and the Middle East to European markets via Turkey, Bulgaria, Romania, Hungary and Austria. Construction is scheduled to start in 2010 and the pipeline is expected to start delivering gas three years later. That’s the plan, at least.

But most experts warn that Nabucco faces major hurdles, the biggest one being just how to fill the pipeline with gas. So far, only Azerbaijan has signed on to providing gas for Nabucco, but it can only fill a fraction of its capacity. Turkmenistan is an option, but there are logistical problems with getting its gas to the pipeline. The best answer for filling Nabucco, in many ways, is Iran, which has huge gas reserves. But both the United States and the European Union are currently opposed to making the Iranians part of Nabucco for political reasons.

Meanwhile, while Turkey’s role as a transit route for the pipeline is crucial, Nabucco is under threat of being held hostage to the politics surrounding Ankara’s beleaguered EU membership bid. During a recent visit to Brussels, Turkish prime minister Recep Tayyip Erdogan said that if the opening of the accession talks’ energy chapter is blocked, Turkey “would of course review our position [on Nabucco].” (Although Erdogan quickly backtracked, Germany’s Economy Minister Michael Glos accused Ankara of engaging in “political blackmail.”)

Nabucco is even under threat of being undercut by Moscow, which is suggesting Europe diversify is gas shipment routes (though not its supply) by the construction of South Stream, a pipeline that would bring Russian gas under the Black Sea to Bulgaria.

“What we have is a series of agreements and a theory,” says Bulent Aliriza, director of the Turkey Project at the Center for Strategic and International Studies in Washington, about Nabucco. “It’s got problems all the way down the line.”

The good news for Nabucco’s backers is that the recent gas dispute between Russia and the Ukraine, which left large parts of Europe shivering in the cold, might breath some new life into the pipeline project. The Hungarian government is today hosting a high-level summit for the various governments involved in Nabucco and there are hopes that the Russia-Ukraine row might push all the actors to get more serious about making the pipeline a reality.

Of course, even if Nabucco were built, it would still need to be seen as only part of a wider energy security and diversification program for the EU. To put things in perspective, while Europe’s annual gas demand is around 500 billion cubic meters (and growing), Nabucco is designed to carry only about 31 bcm annually. So, although it’s an alternative, it’s far from the answer to the EU’s energy woes.

“Simply building a pipeline slightly south is not a strategic issue; it’s a regional one,” says Andrew Monaghan, a research advisor at the NATO Defence College in Rome who recently wrote a paper examining Nabucco for the European Parliament. “What I’m saying is that we should consider enhancing the process, not simply changing the line and hoping that will create a better picture.”

For more on Nabucco’s prospects, take a look at my recent article in the Christian Science Monitor. An article on the Eurasianet website, tackles the thorny issue of Iran’s possible involvement in the project.

UPDATE -- As Reuters reports from the summit in Budapest, the EU is offering support for Nabucco in the way of possible loans, but is not ready to give direct financial support for the project.

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