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PIPELINE PROJECT CAN DIVERSIFY EUROPE’S GAS SUPPLIES
Publication: Eurasia Daily Monitor Volume: 3 Issue: 127
By:
On June 26 in Vienna, the Energy Ministers of Austria, Bulgaria, Hungary, Romania, and Turkey as well as the European Union’s Energy Commissioner Andris Piebalgs signed a Ministerial Statement of commitment to the Nabucco gas pipeline project. According to Piebalgs, the EU regards the planned pipeline from Turkey to Austria as “essential to Europe and the EU’s most important gas supply project.”
The announcement marks the political starting signal for a project that has been under preliminary discussion for several years, focused on Caspian and Iranian gas. Last winter’s disruptions in Russian supplies, the specter of European over dependency on Russia, and a push by the EU’s incumbent Austrian presidency helped accelerate preparations for the project.
The consortium just formed, Nabucco Gas Pipeline International, consists of Austria’s OMV Gas (a fully owned subsidiary of the Oesterreichische Mineraloel Verwaltung, Austria’s largest economic entity) as project developer, and Turkey’s Botas, Bulgaria’s Bulgargaz, Romania’s Transgaz, and Hungary’s Mol, with stakes of 20% each. The latter four are state-owned companies. The EU financed a two-year, OMV-led feasibility study by the Nabucco Pipeline Study Company, from which the consortium now takes over.
The Nabucco line will originate near Turkey’s eastern border at the point where the Baku-Tbilisi-Erzurum pipeline and Iran-Turkey pipeline converge. The consortium plans to use 1,420-millimeter pipe for the 3,400-kilometer line to Baumgarten in eastern Austria.
The project envisages a start to construction work in late 2007, commissioning of the pipeline in 2010, an annual throughput capacity of 8 billion cubic meters (base case) or 13 billion (high case) in the first phase from 2011 onward, and reaching 25 billion cubic meters (base case) or 31 billion (high case) per year by 2020 and thereafter. Half of the annual gas throughput would be consumed in the four countries along the pipeline route, the other half to reach the transportation knot at Baumgarten in eastern Austria. From there, the Austrian and German markets can be targeted, with Italy also an option.
Construction costs are estimated at EUR4.6 billion, or $5.8 billion. The European Investment Bank and European Bank for Reconstruction and Development are committed to lending and syndicating loans for 70% of the costs. The consortium’s five companies shall cover the remaining 30% in equal shares.
The five companies seek EU authorization for 20-year exclusive use of this pipeline, so as to ensure capital recovery and returns to investors. EU authorities agree in principle to such exclusive use, but will discuss its duration. The Nabucco consortium proposes to exercise full operational control over each national section of the pipeline, although Turkey wants national control on its own territory.
If implemented as planned, the project will open for the first time a transit corridor for Caspian and Mideastern gas into EU territory; contribute to diversification of the EU’s supplies, reducing dependence on Russia overall; end Gazprom’s outright monopoly in Hungary, Romania, and Bulgaria and cut its 65% dominance in Austria; turn Turkey and Austria into international hubs for gas transport; and provide some non-Russian options for German and Italian markets.
The gas transport operator OMV is neither a producer nor a distributor, and is currently negotiating with producers and distributors for supplies and for sales contracts, respectively. Such contracts would need to be concluded for the first-phase volumes (see above) by 2007 in order to start the pipeline construction work as planned.
At this stage, Nabucco’s supplier countries seem defined only tentatively. The consortium’s representatives mention Azerbaijan, Kazakhstan, Turkmenistan, Iran, Iraq, and Egypt as possibilities. Even Gazprom is vaguely being mentioned as a possible supplier of part of the overall volume via Turkey. Inasmuch as Gazprom’s inclusion could defeat the project’s basic rationale, such mentions may be seen as purely tactical; but may soon boomerang if such references are seen as
indicating difficulties in lining up other suppliers.
Nabucco’s early concept several years ago had envisaged Iran as the main upstream source for the pipeline. Tensions in Iran-West relations forced a rethinking and uncertain quest for other supplier countries. Iraq as well as Egypt (via a proposed Egypt-Turkey pipeline in this case) seem purely hypothetical prospects at this stage. By contrast, Azerbaijan is a fully realistic prospect; but Azerbaijani volumes — as well as those potentially available from Kazakhstan through a possible trans-Caspian pipeline — are relatively limited and could only support the Nabucco
pipeline’s first phase. Thus, there is no substitute for Turkmen or Iranian gas in Europe for real diversification away from Gazprom.
Austrian and EU officials promoting Nabucco are expressing reasonable hope that the political impediments to importing Iranian gas can be resolved by the time the Nabucco project’s first phase is completed and advances from the first to the second phase. However, this project and the EU itself can immediately seek to reactivate the trans-Caspian pipeline project for both Turkmen and Kazakh gas. Turkmenistan’s vocally expressed discontent with Russia’s monopsony (see EDM, June 23) opens an unprecedented opportunity for Europe to obtain massive non-Russian supplies; and for Azerbaijan, Georgia, and the countries in the Nabucco consortium to provide the transit to Europe.
(www.ftd.de, www.dw-world.de, Austria Presse Agentur, ORF, Der Standard, June 26-28)