Tuesday, July 14, 2009

Nabucco's New Start

I have a piece up on the Eurasianet website looking at the implications of the Nabucco pipeline agreement signed yesterday in Ankara. From the article:
The troubled Nabucco pipeline project -- designed to diversify Europe’s energy supply and loosen Russia’s grip on the continent’s natural gas market -- took a major step forward on July 13 with the signing of a transit agreement between Turkey and five European Union countries involved in the undertaking.

The 2,050-mile-long (3,300 kilometer) Nabucco pipeline is designed to bring gas from the Caspian Basin and the Middle East to European markets via Turkey, Bulgaria, Romania, Hungary and Austria. The $10-billion pipeline is scheduled to start operating in 2014. Nabucco’s primary objective is to lessen Europe’s overdependence on Russia for gas. Moscow currently supplies approximately 40 percent of Europe’s gas.

Although the signing is being hailed as an important statement of intent, experts caution that Nabucco still faces major hurdles, particularly regarding where the pipeline’s projected annual need of 31 billion cubic meters of gas will come from. "Now that the agreement is being signed, frankly an even more difficult process begins, as to what will fill the pipeline," says Bulent Aliriza, director of the Turkey Project at the Center for Strategic and International Studies in Washington. "Signing the agreement was the easy part."

Despite the signing, there are still no concrete agreements covering Nabucco’s supply. Azerbaijan is currently the most likely supplier, but it can’t fill Nabucco on its own. Other possible sources include Egypt, Syria and Iraq, whose Prime Minister, Nuri Al-Maliki, attended the signing ceremony in Ankara. Turkmenistan also has indicated that it wants to be a supplier.
Another possible, though contentious, supplier would be Iran, which has some of the world’s largest gas reserves. But European Union officials said that, for now, they are ruling out Teheran’s participation. "Iran has major gas reserves and will surely export them one day, but today it imports gas. On top of that, there are the political and legal issues," Andris Piebalgs, the European commissioner on energy issues, said in an interview with the Hurriyet Daily News and Economic Review, a Turkish English-language daily. "Until the outstanding questions are solved, Iran will remain a difficult option."

A similar message was given by Richard Morningstar, the United States special energy envoy, who also attended the signing ceremony. "With respect to Iran, our position is very clear. We do not think that Iran should participate at this point," Morningstar told reporters.
The question of supply for Nabucco may become a race against time, given that the route faces stiff competition from other projects, particularly South Stream, which would carry Russian gas under the Black Sea to Bulgaria, from where it would continue to other parts of Europe….

…. With the signing of the transit agreement, which brings together Nabucco’s major stakeholders, it appears that the project’s planners are following the blueprint laid down by the successful Baku-Tbilisi-Ceyhan (BTC) pipeline, which transports oil from Azerbaijan to Turkey’s Mediterranean coast via Georgia. Like Nabucco, BTC -- which started pumping oil in 2006 -- is designed to diversify the West’s energy supplies and provide a supply route that avoids Russia. Also like Nabucco, the BTC project faced massive obstacles and no shortage of skeptics who said it would never be built.

"If you look back to the BTC struggle, it’s clear that [the planners] are, to a certain extent, following the same path," says CSIS’s Aliriza. "Signing an inter-governmental agreement like this opens up the way to eventually finishing the project."

But Aliriza also warns that there is a difference this time around. When BTC was being planned, Russia was not the energy power that it is today. Russia’s political and commercial ties with some of the countries involved in Nabucco, particularly with Turkey, have also deepened in recent years. "Given all the leverage that Russia can bring to bear makes certain that the BTC analogy doesn’t really apply," he said.
You can read the full article here.

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