Political

Political

NABUCCO PIPELINE: QUO VADIS? â€“ ANALYSIS

NABUCCO PIPELINE: QUO VADIS? â€“ <font color=red>ANALYSIS</font>

30 September 2010 12:46 (UTC +04:00)

Published in the framework of APA-CRIA partnership

After months of stagnation, the Nabucco project has taken some cautious steps forward recently. Companies involved in the pipeline scheme, which would bring Caspian and Middle Eastern gas to Europe through Turkey, have given the clearest signs yet of which suppliers will contribute to the project.

On August 23 the consortium, made up of six European energy companies, announced that it would not be running a spur of the pipeline to the Turkish-Iranian border. It cited â€œthe current political situationâ€ and Nabuccoâ€™s commitment to â€œacting in full accordance with international laws and regulationsâ€ for the decision not to run the line to Iran (Wall Street Journal, August 23).

This refers to the continuing stand-off between Tehran and the West over Iranâ€™s controversial nuclear programme. Clearly, this has been going on for some time, and the consortium was still contemplating Iran as a gas source: what seems to have pushed the shareholders into rejecting Iran was the July round of sanctions imposed by the European Union, which particularly targeted the Iranian energy sector (BBC, July 26). Tehran is a political risk too far.

Some days later, the German company RWE (one of the consortium members) signed a cooperation agreement with the government of Iraqâ€™s autonomous Kurdish region, which should open the door for Iraqi Kurdish involvement in Nabucco (RWE.com, August 27). Aside from the feeder line to Iraq, the Nabucco pipeline will be connected with the South Caucasus Pipeline in Erzurum, Turkey. Here, the pipeline will be able to receive gas from Azerbaijan, particularly its vast Shah Deniz gas field.

Under a recent deal signed between Azerbaijan and Turkey, 11 billion cubic metres of Azerbaijani gas will be exported to Turkey each year. Some of this volume will be used by Turkey while the rest will be transported to Europe.

Meanwhile, Azerbaijan has also been able to provide an alternative route to Europe bypassing both Russia and Turkey. On September 14, the oil and gas companies of Azerbaijan, Georgia, and Romania signed an agreement establishing the Azerbaijan-Georgia-Romanian Interconnector (VOA, September 14). The project will take Azerbaijani gas to Georgia, where it will be shipped by tankers to Romania as liquefied natural gas (LNG), and converted back into natural gas for transport onto Europe.

Having 2 trillion cubic meters of proven gas and 5 trillion cubic meters of prospective gas, Azerbaijan retains sufficient gas reserves for Nabucco.

To boost Nabuccoâ€™s chances, the consortium has been pushing for the introduction of Turkmen gas as well. However, Turkmenistanâ€™s vast gas reserves cannot enter Nabucco without an adequate means of transit across the Caspian Sea. As Caspian-watchers will be aware, Western efforts to build a Trans-Caspian Pipeline across the seabed connecting Turkmenistan with Azerbaijan are a constant source of friction with Russia and Iran.

In late August the Italian company ENI, which already works in Turkmenistan, proposed shipping compressed natural gas (CNG) from Turkmenistan in tankers across the Caspian to Azerbaijan (Hurriyet, August 23). The volumes involved would be small; however, it would serve as a cost-effective stopgap until the trans-Caspian link could be built (Eurasianet, August 10).

ENIâ€™s proposal may be gaining traction: Ashgabat has recently given its strongest signal yet of support for Nabucco (Eurasianet, September 21).

Enticing Turkmenistan has always been the hardest piece of the puzzle; it remains to be seen if the EUâ€™s recent talk of â€œextraordinary effortsâ€ to bridge the Caspian can entice the isolated state further.

Drawing gas from Iraqâ€™s Kurdish region has also its own problems. The central government and the Kurdish Regional Government (KRG) are bitterly divided over the right to export the countryâ€™s natural resources. Baghdad, fearing that exports outside its control risk undermining its sovereignty and diverting essential revenues, has slammed the deal with Nabucco as â€˜illegalâ€™ (AFP, August 31).

The KRG argues that the deal is legitimate under the Constitution, and that revenues will be sent to the federal treasury. Avoiding Baghdad is the KRGâ€™s usual course, but this may not be feasible over such a complex, delicate issue. Although Iraq will be critical to Nabuccoâ€™s long-term success, the countryâ€™s political wrangling means that the Caspian region remains the projectâ€™s best bet at the moment.

Turkmenistanâ€™s recent commitment is a welcome step, and Azerbaijan remains (despite its other options) supportive. However, the EU needs to reaffirm and unify its desire to implement Nabucco. In the long-term, neglect could have political â€“ not just economic â€“ implications, as the Caspian region looks elsewhere.