Nabucco Pipeline’s Prospects Appear Dim

Courtesy of The Wall Street Journal, a report that prospects for the European Union’s favored Nabucco natural-gas pipeline project appear to be dwindling, weeks before a consortium of Caspian Sea producers is due to choose one of four planned pipelines to carry its gas to Europe.  As the article notes:

“…This week, Azerbaijan said it plans to build its own pipeline through Turkey that would run parallel to Nabucco’s planned route. At the same time, the U.S. softened its years-long support for Nabucco, saying it now backs any of the four alternatives so long as they will deliver gas to the most “vulnerable” EU states.


The Shah Deniz field, whose consortium will soon pick a pipeline project.

Nabucco has been planned since 2002 as a 2,400-mile (3,900-kilometer) pipeline that would carry up to 31 billion cubic meters of gas per year from eastern Turkey to a gas hub in Austria. The idea was developed to be a means of reducing the dependency of the EU on Russia for its gas supplies.

But the amount of non-Russian gas needed to fill Nabucco hasn’t yet materialized. With budgets under severe strain and financing tight, the risk that the pipeline could remain unfilled for years before more gas becomes available looks increasingly unsustainable, analysts say.

“Nabucco, I think, commercially is a buried product. It’s dead,” said Borut Grgic, an energy specialist at the Atlantic Council, a U.S.-based think tank, echoing the consensus among numerous energy executives and analysts at the council’s Black Sea Energy and Economic Forum in Istanbul, which ended Friday.

Ambassador Richard Morningstar, the U.S. special envoy for Eurasian energy, issued a statement Thursday denying reports earlier in the week in which he had appeared to say the U.S. now preferred one of the shorter, cheaper alternatives to Nabucco.

“Nabucco continues to be a highly desirable political and strategic option. As with any pipeline, it must be commercially viable,” Mr. Morningstar said.

The statement demonstrated a shift of U.S. policy from support of Nabucco specifically to support of any pipeline that would ensure energy-security goals. It went on to set out conditions to support Nabucco’s smaller competitors.

To be sure, political support for Nabucco remains strong. The European Commission, also represented at the two-day conference, says it remains fully committed to the pipeline project. “Nabucco is also the only project in the Southern Corridor that will enable economies of scale and diversification of gas sources to Europe. We are operating off a very strong basis and there is no reason why, on the political, economic or commercial level, our project won’t succeed,” said Christian Dolezal, spokesman for the Nabucco consortium.

Rovnag Abdullayev, chief executive of Azerbaijan’s state energy company Socar, said Thursday at the conference that Azerbaijan would build a pipeline through Turkey but that it wouldn’t affect Nabucco.

Speaking in Moscow on Friday, another senior Azeri official appeared to suggest Nabucco as a longer-term solution. “I think Nabucco’s time will come,” said Azeri Energy Minister Natig Aliyev, adding that once all Azerbaijan’s projects come online—not just its offshore Shah Deniz field—as well as gas from third countries, Nabucco could be the best option.

“Europe is obviously lobbying for the Nabucco pipeline,” Mr. Aliyev said. “But we believe that apart from Nabucco, which has certain elements of uncertainty about the timeline of its development, there are other projects that can be seen as attractive.”

Frustration over Nabucco’s slow progress in securing gas and contracts has been growing in Baku, the Azeri capital, as well as in transit countries.

“If Nabucco is as strategic to the European Commission as they claim, they should have funded it by now. On one side we say it’s strategic, but we’re haggling about every single thing,” said Trayko Traykov, Bulgaria’s energy minister, in an interview on the margins of the energy forum.

After more than a decade of discussions, the consortium that is extracting gas from Azerbaijan’s Shah Deniz field, led by BP PLC and Norway’s Statoil, is evaluating the four pipeline proposals and putting them together with offers from the consumers that each pipeline would supply.

Nabucco’s competitors include the Interconnection Turkey Greece Italy, or ITGI, project, and the Trans Adriatic Pipeline, both of which would take up to an initial 10 billion cubic meters of gas transmitted through Turkey’s existing gas network to the Turkish border, and then move it across Greece and underwater to Italy, as well as to countries in the Balkans.

BP proposed a fourth alternative at the last moment, which was to build no pipeline at all, but instead to construct a series of interconnectors to join the gas networks of ex-communist countries in southeastern Europe that are currently dependent on Russia for up to 100% of their gas supplies.

All three alternatives would be much less expensive to build than Nabucco, which is expected to cost well above its official estimate of €7.9 billion ($10.6 billion).

The European Union currently consumes more than 500 billion cubic meters of gas a year, making even Nabucco a relatively small addition. But political and commercial competition over the route has been intense because it would blaze a non-Russian trail that could ultimately bring much larger quantities of gas to Europe from Central Asia, Iraq and Iran, analysts and diplomats said.

If anything, Europe’s demand expectations for gas have increased in recent months. Paolo Scaroni, chief executive of Italy’s Eni SpA, said Friday in a speech to the Istanbul Forum that Germany’s decision to accelerate closure of its nuclear plants in the wake of Japan’s Fukushima disaster would boost demand for gas by 30 billion cubic meters per year.

That, he said, increased the need for Russia’s answer to Nabucco, called South Stream, an even bigger and more expensive 63 billion cubic meter pipeline project that would take Russian gas across the Black Sea to Europe, in which Eni is a partner.

Mr. Scaroni then poked fun at South Stream’s non-Russian rivals. “What strikes me about this list of projects is that there seem to be rather a lot of them, while possibly there may not be enough non-Russian gas,” he said.”

This entry was posted on Saturday, November 19th, 2011 at 9:02 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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