(Re-) Fueling Nabucco?

Via The Wall Street Journal, a report that the economic downturn is giving glimmers of hope to the European Union’s efforts to build a supply route for natural gas from the Caspian Sea region.  As the article notes:

“…Falling demand and prices for fuel have cut Russia’s appetite to buy up Central Asian gas, potentially freeing up fuel for the EU’s beleaguered Nabucco pipeline project, analysts say, though it still faces huge obstacles. If built, the pipeline would eventually bring 31 billion cubic meters of gas per year to the EU.

European Commission President Jose Manuel Barroso attends an energy summit last month in Bulgaria, where attendees were told European governments and gas consumers must pledge to back the Nabucco gas pipeline if Europe is to reduce its reliance on Russian gas.

A summit Friday in Prague will for the first time, according to EU officials, bring together presidents, prime ministers and other leaders from all the players — including Turkey, Azerbaijan, Iraq and Egypt — needed to build gas pipelines to the EU from the Caspian Sea region and the Middle East.

The EU has pushed Nabucco as a way of diversifying its supplies, making it less dependent on imports of Russian gas. This year, for the second time since 2006, a price dispute between Ukraine and Russia caused Russia to halt gas supplies to the EU for several weeks.

The project has been plagued from the start by concerns that there wouldn’t be enough gas to fill the pipeline, as well as by tortuous negotiations between Turkey and the pipeline’s consortium over the terms of transit.

According to Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies in England, a sudden collapse in demand and prices for natural gas as a result of the downturn is changing at least part of that equation.

On April 9, an explosion on the pipeline connecting Turkmenistan to Russia prompted an angry response from Turkmen leaders, who also floated the idea of the need to diversify export routes. The explosion, which the Turkmen government blamed on Russian gas monopoly OAO Gazprom, halted supplies that were losing Gazprom large sums of money. The gas had been contracted last year, when fuel prices were at their peak, and Gazprom’s export markets were drying up. The head of Russia’s Oil and Gas Institute blamed the explosion on the poor state of Turkmenistan’s pipeline network.

“We are in a situation we never expected to be in,” says Professor Stern, noting that until last year, Russia had been scouring the region to sign long-term contracts, buying up all the gas it could find. Now, instead, Gazprom has angered countries such as Turkmenistan, which says it suspects the company of trying to wriggle out of buying the contracted gas.

At Friday’s summit, EU officials say they are seeking firm political commitments from suppliers to provide specified amounts of gas, and from purchasers in the EU to buy it. Russia and the U.S. will also attend the summit, as observers.

Even with the increased interest from Central Asian governments to sell their gas to Europe, getting Nabucco off the ground remains a tall order, analysts and officials say. One problem: A dispute over the legal status of the Caspian Sea makes it difficult to build a pipeline across the sea to connect the Central Asian suppliers with Nabucco. EU officials say a link could also be built by shipping gas, but this would be expensive, analysts say.

Turkey has been in negotiations with the Nabucco consortium for months over the terms of transit for the gas, at times suggesting it may link any deal to progress in its own, troubled membership talks with the EU. Officials at the EU now say they hope they can secure a transit deal by June.

As soon as those terms are set, the Nabucco consortium can start contracting gas to put in the pipe, according to Christian Dolezal, spokesman for the consortium. The consortium for the €8 billion ($10.65 billion), 3,300-kilometer pipeline includes Botas AS of Turkey, Bulgarian Energy Holding EAD, MOL of Hungary, Austria’s OMV Gas & Power GmbH, Germany’s RWE AG, and Transgaz SA of Romania. Nabucco is scheduled to start operating in 2014, although most analysts think that deadline won’t be met.

EU officials also note that gas pipelines take many years to get off the ground, and that of the three projects the EU is backing as part of its efforts to construct a so-called southern corridor for energy, one — an 8 billion cubic meter-a-year connector pipe from Turkey to Italy through Greece — is already partially built.”

This entry was posted on Friday, May 8th, 2009 at 10:06 am and is filed under Azerbaijan, Egypt, Iraq, Russia, Turkey, Turkmenistan.  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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