Courtesy of The Economist, a report on how technological change and new pipelines are improving Europe’s energy security.  As the article notes:

FOR years, the idea that Europe might get gas from the Caucasus and beyond, breaking Russia’s monopoly on east-west pipelines, seemed fanciful. Not any more. The leading contender, the Nabucco pipeline, backed by the European Union, is gaining speed (see map). Last month the project won $5 billion in loans from the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development.

Nabucco is not yet a done deal. Two big members of the consortium, RWE of Germany and OMV of Austria, said on October 8th that they had postponed to next year a final decision on whether to invest. RWE would like to build the Turkish part of the project. But Turkey is considering a public tender in which local firms would get a share of the cake. Any slowdown may raise the pressure on the EU to shoulder more of the risk itself.

Another problem is the source of gas. At first Nabucco needs 8 billion cubic metres (bcm) a year from Azerbaijan, but it wants a lot more to be fully viable. Turkmenistan is the best option: it has fallen out with Russia, thawed relations with Azerbaijan, and built a pipeline from its onshore gasfields to the Caspian coast. Gas could continue from there either by a pipeline across the Caspian (though Russia objects) or, more cumbersomely, by tanker.

Nabucco is not the only party interested in Azeri gas. The authorities in Baku continue to flirt with Russia (though any pipeline going northward would have to cross the unstable north Caucasus). Two rival projects aim to bring Azeri gas to southern Italy via Turkey and Greece. That would not help gas-hungry central Europe. But the costs and politics of the Adriatic route are simpler.

As Turkey flexes its muscles, other countries plot to bypass it. A new scheme, the Azerbaijan-Georgia-Romania Interconnector (AGRI), aims to use an existing trans-Caucasus pipeline, and then tankers across the Black Sea. This might use liquefied natural gas (LNG), or cheaper (but untried) compression technology. From the Romanian port of Constanta, it would then go through an existing pipeline to Hungary. AGRI will not carry as much gas as Nabucco’s planned annual target of 38 bcm. But it is cheaper to build, costing perhaps €1.2 billion ($1 billion), and will save on Turkish transit fees. Despite noisy political backing, AGRI’s real role is probably to soften Turkey’s negotiating stance.

For its part, Russia is continuing to push its rival South Stream project, which would go, expensively, across the bottom of the Black Sea, bypassing Ukraine. It has gained some German backers. But crucial bits are missing. Russia’s ill-run and debt-ridden gas industry has little extra capacity. Bulgaria is still furious about having its gas supplies cut off during the Russian-Ukrainian gas row in January 2009. Sofia wants to lessen the country’s energy dependence on Russia, not increase it.

Russia may be down, but it is not out. The Nord Stream pipeline on the Baltic seabed is being built, bringing Russian gas directly to Germany and reducing dependence on transit countries such as Belarus and Ukraine. Russia’s new gas contract with Poland could tie that country to supplies from the east until 2037. Some Poles like this. Others, chiefly in the foreign ministry, think it could jeopardise the country’s plans to develop its own reserves, and to build a terminal to import LNG. The European Commission has now intervened, claiming that Russian restrictions on the destination of the gas, and the use of the pipeline, are illegal.

Stealthily but successfully, the commission has been liberalising Europe’s gas market. A new directive makes it compulsory for all gas pipelines to be reversible, meaning that they can be used not just for funnelling gas into Europe, but also for moving it around the continent. That weakens the position of monopoly suppliers such as Russia.

Another big change is the growth of interconnecting pipelines, hooking up what have until now been energy islands. A new pipe was due to be inaugurated by the Hungarian and Romanian prime ministers on October 14th. Completing the north-south gas grid is a priority for Hungary as it takes over the EU’s six-month rotating presidency in January. (Poland, which comes next, thinks similarly.)

The most important shift, however, is not on land but at sea. The big worries over European energy security came when the world gas market was tight. But the price of LNG has plunged, chiefly because America, now well supplied with shale gas, has stopped importing it. Nabucco remains important as an insurance policy, and as a sign that the EU’s common energy policy is more than talk. But it also looks like an answer to a problem that technology and the market may already be solving.”