New Life for Nabucco?

The Guardian is reporting on what may be a major breakthrough for the troubled Nabucco pipeline project (which was previously discussed in this post). Designed to break Russia's almost monopolistic control over Europe's energy supply, the pipeline would bring natural gas from the Caspian region and the Middle East to European markets via Turkey. Up until now, Nabucco has been dogged by questions over who will be part of providing its supply and by Turkish haggling over transit fees. 

Following a recent summit in Prague that brought together the project's key players, it appears that Nabucco is being given a new lease on life. From the Guardian's report:

The European Union and Turkey have struck a ground-breaking gas pipeline deal unlocking a potential energy bonanza in the Caspian basin after more than a year of deadlock, according to senior EU officials.

The agreement, to be signed in Ankara on 25 June, represents a major boost to the EU's ill-starred Nabucco pipeline project, which is intended to transport natural gas to Europe from central Asia, the Caucasus and the Middle East, and is the key to breaking the Kremlin's stranglehold over Europe's gas imports. "This is a complete breakthrough," said a senior EU official involved in the tough negotiations with Turkey. "The Turks have accepted our terms. There is no conditionality."

The €9bn Nabucco project is at the centre of a contest pitting Russia against the EU and involving Turkey, Germany, Austria, Azerbaijan and the authoritarian regimes of central Asia in the effort to secure Europe's gas needs while curbing the hold Moscow and the gas monopoly Gazprom have over the supply lines. The case for Nabucco is debated, but was reinforced by Russia's gas war with Ukraine in January, which caused havoc with Gazprom supplies to eastern and central Europe. There had been similar disputes in 2006 and 2007.

Nabucco, stretching more than 2,000 miles from Turkey's eastern border to Europe's main gas hub outside Vienna, would be the main route for pumping gas to Europe not controlled by Gazprom. But the plan had faltered over deadlock between the EU and Turkey over the pipeline transit agreement. More than half the pipeline is to be located in Turkey, making it the gatekeeper of Europe's energy supplies.

Ankara has been driving a hard bargain, insisting on collecting a "tax" on the gas being pumped and demanding 15% of the transit gas at discounted prices. This, say EU officials and the six-company consortium that is to build and run the pipeline, would render Nabucco financially unviable.

The stalemate was broken at a summit in Prague last Friday between the EU and the countries involved. "The 15% demand has gone," Andris Piebalgs, the EU commissioner for energy, told the Guardian. "We've agreed on cost-based transit. We're very close to a conclusion." A senior Czech official organising the summit likened the negotiations to "bargaining in an Istanbul souk", while an EU envoy to the region worried that "nothing is done until it's done".

But the European commission president, José Manuel Barroso, said President Abdullah Gül of Turkey assured him the deal would be signed within weeks. "That's what President Gül told me," he said....

....As well as Nabucco, the Europeans spoke specifically for the first time about supporting the building of a pipeline under the Caspian Sea connecting Turkmenistan and central Asia to Azerbaijan. The central Asian gas was up for grabs, said the senior EU official, and if Europe did not get there first, it would go to Russia or China.

If Nabucco is to happen, it will initially need the gas from Azerbaijan's BP-run Shah Deniz-2 field. But officials in Brussels view Turkmenistan, with its vast gas deposits, as the key to its longer-term viability.

The Russians are pressing the central Asians and Azerbaijan hard to try to put a stop to Nabucco and retain control of all the supply routes to the west. The Turkmens attended the Prague summit, but declined to commit, apparently deciding to try to play the Russians off against the Europeans.

You can read the full article here.

Getting Nabucco off the ground would be a major triumph for the EU and a good sign that the bloc is starting to formulate a more cohesive energy policy. What should be remembered, though, is that once built, the Nabucco pipeline will supply only a fraction of Europe's gas supply. Creating an energy supply that is truly secure -- in terms of diverse sources and supply routes -- will require more long-term thinking and planning.