Baku expects three gas transportation consortiums to submit competing bids by October for the gas production of Azerbaijan’s Shah Deniz field, Phase Two. The rival projects are Nabucco (Turkey-Bulgaria-Romania-Hungary-Austria, potentially reaching Germany), ITGI (Interconnector Turkey-Greece-Italy), and TAP (Trans-Adriatic Pipeline, linking Turkey via Greece and Albania to Italy). Azerbaijan can choose one of the three projects, in accordance with its national interests and on its own timetable.
Of the three competing projects, Nabucco alone is strategic in terms of capacity (designed for 31 billion cubic meters per year in its second stage), intercontinental scope (linking Central Asia via the South Caucasus with Europe), and market impact (targeting Central Europe to break Gazprom’s monopoly there). It counts on Azerbaijani gas for the first stage, adding Turkmen volumes in its second stage.
ITGI and TAP are non-strategic by these criteria and are also competing against each other. They are company projects on a relatively modest scale (10 bcm per year each), too small to accommodate Turkmen gas in their pipelines, but sufficient to threaten Nabucco and thus bottle up Turkmenistan. The ITGI and TAP are mainly targeting an already diversified and saturated Italian market. They would re-route Azerbaijani gas away from Nabucco-participant countries, which need both the volumes and the diversification. Caspian gas going to Italy would play into Gazprom’s hands in East-Central Europe (see EDM, August 17-19).
The European Union supports Nabucco based of these strategic considerations. Nabucco’s rivals are deploying their counter-arguments to discourage such support. A compendium of such counter-arguments can be culled from the current issue of the highly respected European Energy Review (EER, September 26).
1. Claim: The EU’s support for Nabucco generates “serious doubts for the smaller pipeline projects…those on the brink of signing piecemeal deals” [with Azerbaijan], i.e. TAP and ITGI. This argument concedes that “there simply is not enough gas to go around for multiple pipeline options” [from Azerbaijan].
Fact: Given the zero-sum contest over Azerbaijani gas, the EU prioritizes the strategic pipeline option over “piecemeal” ones. The two non-strategic projects, unconvincing on their own merits, seek to survive by discouraging European support to Nabucco, claiming pre-emptive access to Shah Deniz Phase Two gas production, and denigrating the prospects of Turkmen gas supplies to Europe.
2. Claim: A trans-Caspian pipeline stands “close to zero” chances, Turkmenistan has promised gas to “pretty much anyone,” Turkmen gas remains the “core preserve of Russia,” while China provides some marginal outlets. Turkmenistan plays various interests off against each other, and demands political and security guarantees to boot; Iran and Russia “wield heavy vetoes over Caspian waters.”
Fact: The European Commission, Turkmenistan, and Azerbaijan are starting EU-mandated, trilateral negotiations on a trans-Caspian pipeline; Turkmenistan does indeed seek to diversify its gas exports in all directions, including the European; Russian imports of Turkmen gas are merely 10 bcm per year, with China’s imports now surpassing Russian, and Turkmen reserves amply sufficient to support Nabucco’s second stage. Ashgabat does seek commercial and political “guarantees,” but “security guarantees” are not at issue; President Gurbanguly Berdimuhamedov has repeatedly come out in support of a trans-Caspian pipeline; a Russian-Iranian veto is neither recognized, nor enforceable in any plausible way.
3. Claim: Gazprom’s South Stream project “putting 63 bcm [per year] on European tables” is realistic, and a threat to Nabucco; companies and countries in Western and Central Europe are bandwaggoning with South Stream. The EU should urgently counter it through diversification projects such as TAP, ITGI, and AGRI [see below], instead of prioritizing Nabucco.
Fact: Russia never identified gas or financial resources for South Stream; it is a virtual project with multiple political uses, including a purely illusory threat to Nabucco. While Gazprom’s allies, Wintershall and Electricite de France, have recently joined South Stream on paper, some of the relevant transit countries have de-bandwaggoned or de-prioritized it, favoring Nabucco and AGRI instead (Hungary, Bulgaria, Romania).
4. Claim: the German energy conglomerate RWE, “spearheading the Nabucco project,” might “pull the plug” on it. Hit suddenly and hard by Germany’s abandonment of nuclear energy, RWE is moving to establish joint gas and electricity ventures with Gazprom.
Fact: RWE is just one among the six Nabucco partners, each of them holding 16.67 percent of the shares in the consortium. It might drop out for the reasons stated, but thus far it persists with the project. A potential customer for Nabucco gas, and license holder in the Turkmen offshore, RWE is important to the Nabucco project, but is not a driving force.
5. Claim: The Baumgarten terminal and distribution center near Vienna, 50 percent-owned by Gazprom, is Nabucco’s “Achilles’ heel.”
Fact: The European Commission has successfully blocked Gazprom’s entry into Baumgarten in June this year, based on the EU’s Third Energy Package legislation which took effect in March (Wirtschaftsblatt, June 20).
Meanwhile, the EU withholds support also from AGRI (see above) due to the same strategic considerations that militate against TAP and ITGI. The proposed AGRI (Azerbaijan-Georgia-Romania Interconnector, potentially reaching Hungary) is another small-scale option, competing against Nabucco over finite volumes of Azerbaijani gas. Sequencing TAP, ITGI, or AGRI ahead of Nabucco would only compromise the EU-backed strategic project.
Unlike Nabucco, TAP or ITGI, however, AGRI would transport liquefied gas in tankers across the Black Sea, circumventing Turkey. From Azerbaijan’s standpoint, AGRI is a useful bargaining chip, if Turkey continues stalling on the transit agreement for Azerbaijani gas westward. Admittedly, AGRI looks uneconomic with its small proposed capacity (hypothetically 5 bcm per year) and high costs of gas liquefaction. The calculus may change, however, in AGRI’s favor, if sizeable volumes of Turkmen gas become available and if Turkey continues, as it now apparently does (Zaman, September 25), overplaying its hand on the transit terms overland.