Tuesday, May 19, 2009

For Nabucco, Is It Kurdistan to the Rescue?

I have a piece up on Eurasianet looking at the possibility of supply from gas fields in northern Iraq breathing new life into the troubled Nabucco pipeline project (for some background, take a look at this previous post, as well as this one). The "Kurdish" gas option adds an interesting twist to the Nabucco story, although it's clear nobody checked with Baghdad before they announced that Iraqi gas would save the struggling pipeline project. From my article:
Could supplies from gas fields in northern Iraq breath new life into the troubled Nabucco pipeline, a project designed to free the European Union from Russia’s virtual gas supply monopoly?

That was certainly the hope created by the May 17 announcement that a consortium of European and Middle Eastern energy companies completed a deal to develop gas resources in Northern Iraq, part of which would be used to kick start the flow of energy via the long-stalled Nabucco route.

"It’s an important and promising development for the acquisition of a huge volume of natural gas for Turkey and for Europe via Nabucco," the pipeline project’s managing director, Reinhard Mitschek, said of the $8 billion deal between Austria’s OMV AG and Hungary’s MOL, and the United Arab Emirates’ Dana Gas and Crescent Petroleum, which currently operate a gas site in northern Iraq.

Representatives of the UAE companies said they believe the Iraqi fields could supply up to 3 billion cubic feet of gas per day, which is what Nabucco is being designed to carry. Crescent’s executive director, Badr Jafar, said the projected volume was sufficient to justify the construction of Nabucco.

But experts are warning that Iraq’s internal political squabbles may make it difficult for gas from the country’s north to make it to Europe. The Kurdish Regional Government (KRG) controls Northern Iraq, but the central government in Baghdad has rejected the KRG’s attempts to make independent energy deals.

On May 18, a day after the deal between the European and UAE firms was announced, Iraqi Oil Minister Hussain al-Shahristani slammed the proposal. "We will not allow any side to export gas from the region without the approval of the central government and the Iraqi Oil Ministry," he said. Baghdad has previously blacklisted companies that have made independent deals with the Kurdish administration in northern Iraq.

"I don’t think there will be permission for both the development and the export of that gas before the problems between the central government and the KRG are solved," says Necdet Pamir, an energy analyst based in Ankara.

"There is a strong reaction from the Iraqi government to the announced deal and there may be some restrictions put in place. I don’t think in the short term such a development will be fulfilled. This is just wishful thinking right now," he added.

Nabucco’s proposed northern Iraq connection came to light just two days after Russia signed deals with Bulgarian, Greek, Italian and Serbian energy companies to facilitate the construction of a rival pipeline, dubbed South Stream. Those pacts seemed to signal the death-knell for Nabucco, which has been plagued for years by questions about profitability.

Announcing the Iraqi connection may have been a way for Nabucco supporters to make a statement that they won’t be going away anytime soon. "Desperate times call for desperate measures. A few years ago, the Iraqi supply would have been further down the list, but now it’s seen as more of a possibility," said Amanda Akcakoca, an analyst at the European Policy Centre, a Brussels-based think tank....

....The failure of the Iraqi connection to materialize for Nabucco would mark just the latest in a series of setbacks for the pipeline project. Two problems that continue to hover over Nabucco are a lack of reliable suppliers and disagreements between the European Union and Turkey over transit fees. According to recent reports, a May 8 meeting in Prague between the EU and countries involved in the pipeline project may have achieved a breakthrough in disputes between Brussels and Ankara, but Nabucco is still very much in danger, experts say.

"Within EU circles everyone is still talking about Nabucco positively, but if you talk to experts, most of them say it is dead," says Akcakoca.

"Perhaps they [analysts] re being too pessimistic, since Nabucco is still on the table and if enough of the right political and financial support were put behind it, it would still have a chance," Akcakoca continued. "The situation in Iraq itself makes it unlikely as a primary source for Nabucco. The main sources still remain in Azerbaijan and Central Asia."
You can read the full article here.

(Photo - A gas extraction plant in northern Iraq)

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