Recent Initiatives to Advance the Nabucco Project

While the Nabucco pipeline remains clearly the centerpiece of the Southern Corridor project, Nabucco alone—even in its second, full-capacity phase—would be far from sufficient to cover the rise in European demand for non-Russian gas in the next decade. A fully-developed Southern Corridor could achieve the twin objectives of European energy security: meet the rising gas demand in Europe while reducing the Russian share in Europe’s overall gas consumption.

Gas inputs from Egypt (via the Jordan-Syria-Turkey pipeline) or from Iraq into the Southern Corridor might also serve that goal and will be discussed at the Budapest meeting. These Middle Eastern options look sketchy, however, and could detract from the project’s overall credibility, if they merely serve as excuses for ruling out Iranian gas from Nabucco’s second phase.

Hungary’s MOL company is actively promoting its initiative, New European Transmission Systems (NETS), to interconnect the national gas transmission networks in Central and Southeastern Europe. A unified regional market could strengthen the incentives for international investment in the Nabucco project and increase the attractiveness of downstream profits for Caspian gas suppliers. Moreover, NETS would enable countries in this region to share the costs of modernizing the systems and attract investments in the infrastructure that would serve a unified regional market for gas. In these ways, NETS is functionally connected with the Nabucco project and a significant asset to Nabucco.

Up to 10 countries are now taking part in consultations initiated by MOL on this project. NETS would enable countries in Central and Southeastern Europe to trade and/or swap gas and assist each other in any type of emergencies, including cut-offs by abusive suppliers. Interconnections would have made it possible for some countries in the region to share available volumes with those most heavily hit by the suspension of Russian supplies, as MOL president and CEO Zsolt Hernadi told a Hungarian parliamentary hearing preparatory to the Nabucco summit (MTI, January 20).

Austria’s OMV energy conglomerate and Germany’s leading power producer RWE (Rheinisch-Westfaelische Elektrizitaetswerke), members of the Nabucco consortium, have initiated a joint company to build and operate a trans-Caspian gas pipeline from the Caspian Sea’s eastern shore westward. This entity, Caspian Energy Company, targets mainly Turkmen gas, aiming to build a trans-Caspian pipeline to Azerbaijan and link up through Georgia with the planned Nabucco pipeline. BP is being mentioned as a potential partner in this joint venture.

RWE’s CEO Juergen Grossmann and Bulgarian President Georgi Parvanov recently held talks in Turkmenistan on possible supplies for the Nabucco project. Parvanov announced Bulgaria’s intention to purchase 2 billion cubic meters annually, in anticipation of Nabucco’s commissioning (BTA, December 19, 2008; Turkmen TV, January 8). The Hungarian government and MOL had already approached Turkmenistan and Kazakhstan in 2008 for possible gas supply commitments to Nabucco’s second, full-capacity phase. Lining up supply volumes and transport solutions for the pipeline’s second phase is a prerequisite to financing and construction of the first phase.

Meanwhile, Turkey, a member of the Nabucco consortium, continues to pose difficulties for the project. Ankara seeks onerous concessions for allowing Azerbaijani gas to move westward to Europe. It is also using its participation in the Nabucco project as a bargaining lever in Turkey’s accession negotiations with the EU. Turkey risks scuttling its own accession prospects (which look weaker already), if it holds up the Nabucco project to spite the EU (Frankfurter Allgemeine Zeitung, La Libre, January 20; see EDM, January 20).

The pipeline’s first phase relies mainly on Azerbaijani gas. Azerbaijan is firmly committed to Nabucco in keeping with the country’s Western orientation. Nabucco’s first-phase construction and its commissioning by 2013 are correlated with the second phase of development at Azerbaijan’s giant Shah-Deniz offshore field. President Ilham Aliyev has reaffirmed the commitment to Nabucco time and again, most recently during Estonian President Toomas Ilves’s visit to Baku (Trend Capital, BNS, January 15).

Azerbaijan’s commitment should, however, not be taken for granted indefinitely. If the Nabucco project suffers further delays—whether for insufficient EU support, Turkish obstructions, or some other reasons—Azerbaijan may find it difficult to resist Russian inducements and pressures. For inducements, Russia has offered to buy all of Azerbaijan’s gas export volumes at European netback prices. For pressures, Russia is currently arming the Armenian military while playing the Karabakh card with Azerbaijan. Loyalty to Nabucco means that Azerbaijan loses short-term commercial opportunities to sell gas to Russia while irritating Moscow politically. The EU needs to resolve this dilemma soon. As Azerbaijan’s Minister of Foreign Affairs Elmar Mammadyarov recently cautioned, “The Russians have offered a deal. But there are different options on the table. At the end of the story it is our gas” (The Guardian, January 7).

The EU’s Czech and Swedish presidencies during 2009 will support Nabucco actively. Speaking in the European Parliament, Czech Prime Minister Mirek Topolanek urged the EU as a whole to support the Nabucco project as an “absolute priority” in the lead-up to the Budapest meeting and thereafter (AFP, January 14).