Nabucco Project Adds Options For Gas Producers And Consumers

The Nabucco pipeline consortium is planning an expanded version of this project, within the framework of the EU-backed Southern Gas Corridor to Europe. The added elements include, as distinct possibilities: linking up with Turkmenistan through a trans-Caspian pipeline, to connect with Nabucco via Azerbaijan; inviting Azerbaijan to join the Nabucco consortium; substantially raising the production target for the Shah Deniz field’s Phase Two of development in Azerbaijan; and linking the Nabucco trunkline with the transmission systems of countries in Southeastern and Central Europe, not only along Nabucco’s linear route to Vienna, but also laterally with neighboring countries, thus multiplying the marketing options for Caspian gas in Europe.

Nabucco consortium executives presented some of these planning developments during the annual Turkish Oil & Gas Conference (TUROGE) held on March 17 in Ankara. This process is also ongoing in Baku and, with the European Commission’s assistance, in Ashgabat.

A tripartite group consisting of Azerbaijan, Turkmenistan, and the European Commission has been set up to prepare an agreement on construction of a trans-Caspian pipeline. On March 17, the EU’s special representative for Central Asia, Pierre Morel, updated Turkmen President Gurbanguly Berdimuhamedov in Ashgabat on the results of the tripartite group’s first session. The tripartite group is tasked to draft an inter-governmental agreement, involving Turkmenistan and Azerbaijan as parties and the commission in an observer’s capacity (in fact, facilitator). According to Azerbaijan’s Energy and Industry Minister, Natig Aliyev, the agreement would define the two parties’ rights and obligations regarding a trans-Caspian pipeline that would connect with the Southern Corridor to Europe (Turkmen government website, March 17; Trend Capital [Baku], March 18).

This initiative stems from the commission’s high-level visit to Ashgabat in January, when Berdimuhamedov reaffirmed his commitment to a trans-Caspian pipeline as one of several export routes for Turkmen gas. Shortly thereafter, Ashgabat hosted an international conference to make the case for the ecological feasibility of such a pipeline; and it has hosted another such conference since then (Turkmen government website, March 14). This activity answers Russian and Iranian political objections disguised as ecological objections to a trans-Caspian pipeline.

The Shah Deniz gas producers’ consortium is considering the option of boosting Phase Two of production  to 24 billion cubic meters (bcm)  annually, instead of 16 bcm per year as currently planned (and compared with 9 bcm per year, planned for the peak of Phase One of production). The field’s proven reserves of 1.2 trillion bcm would allow such an intensification of the production rate. The consortium is considering the production increase after receiving purchase bids from European gas shippers far exceeding the planned 16 bcm in annual output (four times larger, according to some accounts). Partly as a result of this, the producers’ consortium has extended the deadline for submission of gas shippers’ bids, from March 31 to October 31. This correspondingly necessitates postponing final investment decisions (Platts Commodity News, March 17; Trend Capital, March 18).

Apart from Nabucco, two other pipeline consortiums –the Interconnector Turkey-Greece-Italy (ITGI) and Trans-Adriatic Pipeline (TAP), both nominally within the Southern Corridor to Europe– are competing over access to Phase Two of the Shah Deniz output. One portion of that output (apparently, some 6 bcm per year) is already set aside for Turkey, with a supply agreement due for signing this year, along with a transit agreement. Access to Turkmen gas, however, would ease that contest over Shah Deniz production. By the same token it would turn Azerbaijan into a major transit country (on top of its role as producer) and maximize Azerbaijan’s importance to Europe.

Baku had been urging for some time that the Nabucco trunkline should link up not only with the transmission systems of participant EU countries (Bulgaria, Romania, Hungary, Austria and Germany) but also with those of neighboring countries. Azerbaijan is interested in opportunities for marketing gas volumes in Southeastern and Central European countries such as Greece, Serbia, Western Balkan countries, and Slovakia, in addition to the Nabucco countries themselves. The consortium has apparently embraced this view (Platts Commodity News, March 17).

This confers to Nabucco a competitive advantage over the ITGI and TAP projects.  While both of these are headed for a peripheral, poorly connected destination (Italy’s southeastern-most corner), Nabucco is targeting a gas market where a network of interconnectors is now taking shape. Partly financed from EU funds, the interconnectors (Bulgaria-Greece, Hungary-Croatia completed, Bulgaria-Greece and Hungary-Slovakia planned) will be connecting the Nabucco pipeline with countries that are also interested in Caspian gas to diversify their supplies. The consortium also intends to link up with the Czech Republic’s transmission network from the Nabucco’s Baumgarten terminal near Vienna. Existing free capacities in the Czech network would open access for Caspian gas northward into Germany (also accessible via Austria) and eastward into Slovakia (also accessible from Hungary).

Operating through bi-directional interconnectors, this system would maximize commercial flexibility from the suppliers’ perspective, as well as supply security from the consumers’ perspective. And it would offer a “one stop shop” for gas suppliers in Azerbaijan, Turkmenistan, and possibly northern Iraq to reach European markets via an interconnected Nabucco pipeline.