A Window of Opportunity for the Nabucco Project at Budapest Meeting

The Nabucco gas transport project, whose stakeholders and institutional backers are holding a high-level meeting in Budapest on January 26 and 27, faces a unique window of opportunity in a reshaped strategic context (see EDM, January 6, 22).

The meeting is being held in the wake of Moscow’s unprecedented, two-week suspension of Russian gas supplies to Ukraine and Europe. Moscow’s brutal move inadvertently opened the window of opportunity for the Nabucco project even wider. The Russian supply cutoff demonstrated Russia’s unreliability as a supplier, the risks of dependence on Moscow, and the imperative for Europe to diversify its supply sources by gaining direct access to Caspian gas through the Southern Corridor, with the Nabucco pipeline as its centerpiece.

The Budapest meeting had been announced well before the Russian gas cutoff, but the sequence of these events should powerfully spur practical decisions at the meeting on launching the Nabucco project.

The Nabucco consortium has received a promise of partial funding through the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB); but this is insufficient, as the Hungarian government’s project coordinator, Mihaly Bayer, noted in prefatory comments. In addition to EBRD and EIB funding, the Nabucco consortium’s companies also need more substantial funding directly or indirectly from the European Commission (Nepszabadsag, January 21).

The necessity of such intervention is increasingly understood in Brussels and elsewhere in Europe with regard to infrastructure and energy projects at the present time. But that understanding has not yet translated into EU funding for Nabucco or related projects for gas in the Southern Corridor While the EU has subsidized construction of highways and railroads for years from ample, specially earmarked funds, it has not subsidized pipelines and is only now considering this possibility.

The EU Commission recently created a €5 billion ($6.6 billion) energy development fund, some €3.5 billion ($4.03 billion) of which have already been assigned for wind and solar energy projects in northern and southern Europe, respectively. At least 30 other projects are listed as possible candidates for the remaining Euro 1.5 billion. From an energy security perspective in the gas sector, where dependence on Russia is the most fraught with risk, three projects stand out for their urgency: inter-connector Poland-Slovakia and Slovakia-Hungary pipelines and a liquefied natural gas (LNG) terminal on Croatia’s Adriatic coast.

Those two inter-connectors relate to Nabucco and the Southern Corridor for natural gas while also reflecting the EU’s policy goal to interconnect the national pipeline networks in Europe. In Central-Eastern and Southeastern Europe this means building north-south pipeline links, given that the Soviet-bequeathed transit pipelines run east-west, exposing the unconnected countries to grave risks as the recent crisis demonstrated. The proposed Poland-Slovakia and Slovakia-Hungary inter-connectors answer to that necessity. Moreover, Hungary is already building inter-connectors jointly with Croatia and with Romania, which could add up to a north-south interconnected system encompassing those five countries.

For its part, Slovakia, which suffered the most from the Russian cutoff, has announced its intention to join both the Nabucco project and the Hungarian-initiated NETS (New European Transmission Systems) regional interconnectivity project (SME, January 26).

Poland has announced that it is analyzing the possibility of linking up with the planned Nabucco pipeline. The working hypothesis is a link via Slovakia to Baumgarten, Nabucco’s designated terminus near Vienna. Given, however, the Austrian OMV’s cession of 50 percent ownership in the Baumgarten platform to Gazprom since 2007, Baumgarten seems less appropriate than a Hungarian location for a Polish hook-up to Nabucco via Slovakia.

The proposed LNG maritime terminal in Croatia could help a number of countries reduce their dependence on pipeline-delivered Russian gas. Moscow’s recent supply cutoff has spotlighted the need to create LNG options for import diversification, particularly in Central and Southeastern Europe, where dependence on Russia is highest and LNG development is practically nil.

In Hungary itself, some officials in the Socialist minority government seem to cast doubt on the government’s commitment to Nabucco. Finance Minister Janos Veres, Energy Minister Csaba Molnar, and Hungary’s ambassador to Moscow Gyorgy Gillian have all made favorable references to Gazprom’s South Stream project, the rival to Nabucco, on the eve of the Nabucco meeting in Budapest. The technique of such statements is to endorse both South Stream and Nabucco in the same breath, as if ignoring the fact that the two projects compete against each other for Caspian gas, regional markets, and investment funds (HIR Television, January 21; Nepszabadsag, January 22; Interfax, January 24).

Such statements elevate Gazprom’s South Stream to the same level as the Western-backed Nabucco, creating the impression that the Hungarian government wavers yet again between the West and Russia on energy policy. One year ago, Veres and the Hungarian embassy in Moscow pushed strongly for Hungary’s accession to South Stream. Prime Minister Ferenc Gyurcsany caved in at that time but shifted course again toward Nabucco by mid-2008 and has stayed this course since then. The opposition Fidesz party has led the way in forming a national and parliamentary consensus for the Nabucco project since 2007.