Nabucco pipeline turns corner but needs gas

July 13, 2009

Things are finally looking up for the Nabucco pipeline.
After years of setbacks and wrangling, the prospect of building a supply route for Caspian natural gas across Turkey to central Europe, by-passing energy giant Russia, took a big step forward on Monday when five nations signed a transit agreement.
Getting Turkey on board was crucial, at a time of uncertainty in its negotiations to join the European Union.
What the 7.9 billion euro project most needs now is gas. Key potential suppliers Azerbaijan, Turkmenistan and Kazakhstan face pressure from Moscow to send all their output north, through the Russian pipeline network, rather than west.
China is meanwhile racing to build pipelines that will vie to take Caspian and central Asian gas to the Far East. Iran and Iraq are also potential suppliers to Nabucco but there are political obstacles in both cases.
The European Union, backed by the United States, will need to show unwavering commitment to get Nabucco built and filled. Moscow will try hard to thwart it.
Given their scale and cross-border reach, all big pipeline projects are political. The EU-sponsored Nabucco is just as geopolitically driven as the U.S.-backed Baku-Tblisi-Ceyhan (BTC) oil pipeline was in the late 1990s.
Washington’s determination to create an energy corridor from Azerbaijan across Georgia to Turkey, cutting out Iran and Russia, convinced sceptical oil majors to invest. The fact that BTC was built despite an oil price slump was a triumph of geopolitics over commercial considerations. The rise in prices by the time it opened in 2005 vindicated the investment.
Sceptics say Nabucco, due to be operational by 2014 with a capacity of 31 billion cubic metres a year, will not be built until there is enough signed-up gas to fill it. There is none so far. But the BTC precedent suggests that building it is the key to filling it.
The European Union is weaker and less united than the United States, and Moscow is pressing ahead with a rival South Stream project to pipe gas under the Black Sea to southeastern Europe.
Suppliers will only sign up if they feel confident that the West is fully behind Nabucco, and willing to stand up to Russia.
Last year’s Georgia war and repeated gas crises between Moscow and Ukraine have spurred Europe’s drive to diversify energy sources but made Caucasian and Central Asian governments more wary of the risks of incurring the Kremlin’s wrath.
The EU’s decision to provide 200 million euros in start-up funding for Nabucco is encouraging. But given the credit squeeze, European governments may have to do more to guarantee finance for the project.
The pipeline is only one piece in the puzzle of European energy security, and arguably not the most important.
Creating a single European Union energy market by connecting member states’ pipelines and power grids is the most urgent and practical way to reduce dependency on Moscow.
Developing liquefied natural gas supplies and terminals is another relatively quick way to diversify suppliers and routes.
Reducing fossil fuel consumption through efficiency savings and by developing renewable sources will also help.
But the lengths to which Russia has gone to try to kill off Nabucco highlight the importance of the project.

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