Nabucco Project Stakeholders Look Forward to Leadership in Brussels

Stakeholders and other interested parties in the Nabucco project are expressing concern over the project’s apparent stagnation, and calling for urgent consultations to revitalize the project. Nabucco is simply marking time in the absence of a coordinating mechanism between producer, transit, and consumer countries, and without hands-on leadership from the European Union during the transition from one commission to another in Brussels. The transition and distractions in Washington have also limited the ability of an otherwise supportive United States to help deal with the logjam on Nabucco.

Political problems have recently added new complications to the Nabucco project. One such problem, clearly recognized by project stakeholders and other European observers, but underestimated in Washington, is Azerbaijan’s political alienation resulting from recent US policies on the Armenia-Azerbaijan conflict. Those policies, in their result if not intent, came close to de-aligning Turkey from Azerbaijan, while strengthening Russia’s and Armenia’s hands in the negotiations on the Karabakh conflict. At perceived risk of isolation, and lacking an outlet to Europe for its growing gas surplus, Azerbaijan is open to Russian and Iranian offers to export its gas in those directions.

Azerbaijani President Ilham Aliyev reminded international media during the Economic Forum in Davos that Gazprom has offered to buy all gas volumes available for export in Azerbaijan (“as much as Azerbaijan can sell”) at European-level prices. “If Nabucco continues to be delayed, we will indeed sell more gas to Gazprom,” in line with Azerbaijan’s export diversification policy. Meanwhile, the $20 billion investment decision for Phase Two of Azerbaijan’s Shah Deniz gas field (the source for Nabucco’s first stage) remains on hold, given the persistent uncertainty about the Nabucco pipeline, Aliyev observed. “So far we do not know which leader would move the process forward. Who will engage in negotiations with gas producers and transit countries? Who will do the marketing for this gas? What will be the pricing? These are a lot of questions that remain unanswered for quite a long time,” he asserted. Aliyev also noted Turkey’s obstruction of pricing and transit agreements for Azerbaijani gas: “how can we move ahead [with Nabucco] in such circumstances?” (ANS, Bloomberg, January 27; www.day.az, Wall Street Journal, January 28; Hurriyet, January 29).

Baku remains willing and indeed eager to see the Nabucco project move forward and looks to the EU for leadership in that regard. Aliyev made this clear to executives of the German RWE Company (a stakeholder in the Nabucco project) in elaborating on his remarks in Davos (Bloomberg, January 29).

The Turkish Prime Minister Recep Tayyip Erdogan and his Bulgarian counterpart Boiko Borissov are also urging the EU to play a more active role in advancing the Nabucco project. Borissov has most recently expressed concern over the slow pace of Nabucco’s development and pledged Bulgarian support to advance the project. At their joint news conference, Erdogan asked Borissov to ensure that EU member Bulgaria advocates the Nabucco project with the European Commission in Brussels (BTA, January 29; Hurriyet, January 30). Erdogan’s remarks implicitly offer Brussels an opportunity to facilitate the negotiations between Ankara and Baku.

On January 18, the Romanian President Traian Basescu urged more active EU support for Nabucco when meeting with the European Council’s new President, Herman van Rompuy, in Brussels (Agerpres, January 18). The Hungarian government and the private MOL Company (a privately-owned stakeholder in the Nabucco consortium) also look forward to a proactive role by the European Commissioner.

The EU’s outgoing Energy Commissioner, the Latvian Andris Piebalgs, a committed supporter of Nabucco and the Southern Corridor, had little support from Western Europe’s large and influential countries. In one of his last acts in that post on January 18, Piebalgs signed a memorandum of understanding on energy partnership between the EU and the central government of Iraq. Piebalgs termed Iraq an important element in the EU’s energy supply diversification strategy. The EU Commission is mainly interested in Iraqi gas from the Kurdish-administered area for the Nabucco and Southern Corridor projects. Nabucco stakeholders expect ultimately 5 to 10 billion cubic meters (bcm) of gas per year from northern Iraq via Turkey to Europe.

Some in the energy business have tended to imply that gas from Iraq could somehow reduce the vital importance of Azerbaijani gas for Nabucco. This view may reflect frustration with the Ankara-Baku impasse and some indifference about who is responsible. However, difficult pre-conditions need to be fulfilled before the gas can flow from northern Iraq (presuming a satisfactory security situation). As listed by the Kurdish administration and the central government in Baghdad, the pre-conditions include meeting local demand for gas, contributing to Iraq’s overall gas supply, and negotiating revenue-sharing between Kurdish and Baghdad central authorities under a new oil and gas law for Iraq. All this involves political complexities and time-consuming negotiations. Thus, Azerbaijani gas remains the existential issue for Nabucco at least in the first stage; and Turkmen gas via Azerbaijan, just as vital for Nabucco’s second stage and the overall Southern Corridor.