Publication: Eurasia Daily Monitor Volume: 4 Issue: 174

The Nabucco gas pipeline project is back on track (see EDM, September 19), preparing for an actual start. However, this project has a history of being derailed before even starting. In order to avoid any more derailments, this project needs to resolve a number of strategic issues, some of which necessitate consistent and hands-on involvement by the European Union and the United States. Most of these issues are long-standing, but some have only arisen recently for the planned Turkey-Bulgaria-Romania-Hungary-Austria gas pipeline.

The latest pitfall is the attempt by one Nabucco consortium member, Austria’s OMV, to orchestrate a hostile takeover of another consortium member, Hungary’s MOL. The OMV chief, Wolfgang Rutterstorfer, has directly or indirectly reaffirmed this goal in several statements ahead of the September 14-15 Budapest conference, which firmed up the commitments by all parties to the Nabucco project. Meanwhile, MOL is defending itself through market and legislative mechanisms against the takeover attempt, behind which many observers discern possible Russian interests (see EDM, July 24, 25, August 7, 17, September 4). It is not only for Hungary, but also for the EU to make clear to OMV that the latter must not jeopardize the Nabucco project by raiding MOL’s assets.

The consortium and the EU need to make a clear decision in Nabucco’s favor regarding the Baumgarten terminal. Baumgarten, the 100% OMV-owned gas distribution junction near Vienna, has long been designated as the final station of the Nabucco pipeline, as well as a storage and distribution center for Nabucco’s Caspian gas in Central Europe and beyond. However, in May of this year, OMV and the Austrian government (part-owner of OMV) changed their mind and signed an agreement of intent with Gazprom during Russian President Vladimir Putin’s visit. Under this agreement, Baumgarten would become a Gazprom-OMV joint venture, to be expanded as a Central European Gas Hub and Gas Transit Management Center, complete with storage sites, for Russian-delivered gas.

Moscow lured the Austrians with the promise of turning Baumgarten into the largest gas hub in continental Europe. That promise is a dubious one, as Gazprom’s own output is stagnant. Ironically, Russian gas commitments to Europe might only be sustained if Russia absorbs more Central Asian gas, thereby depriving Nabucco of a gas source and raison d’etre (see EDM, May 29, 31). EU authorities would be justified to ask Austria where it actually stands on European energy security.

Russia played off Austria and Hungary against each other on the “hub” issue. The Nabucco project — an Austrian initiative originally — reserved the hub’s role for Austria, while Hungary would participate as a transit country and national recipient of the gas. However, not unreasonably from a Central European perspective, the Hungarian government and MOL also sought a hub role for Hungary to some extent. Moscow seemed to offer Budapest this chance by proposing to extend Gazprom’s Blue Stream pipeline from Turkey to Hungary: not only to “guarantee” gas supplies to Hungary, but also to build there a 10 billion cubic meter storage facility for further transmission of the gas in Central Europe.

Gazprom’s Blue Stream extension, Blue Stream-Two, would follow the same route as Nabucco from Turkey to Hungary, thus preempting the regional markets and killing the Nabucco project. During the last year or so, the Hungarian government gave serious consideration to Blue Stream-Two. The government and MOL are now on the same page with the Nabucco project again. To keep them on the same page, it would seem reasonable for EU authorities to encourage Austria and other Nabucco consortium members to give Hungary a share of the hub’s function. With Baumgarten retaining the main role, Hungary could also host on its territory a storage and transmission site for Nabucco gas, not for the rival Gazprom.

Initially planned to carry Iranian gas, the Nabucco project has yet to identify accessible and commercially viable sources of gas. Azerbaijan’s Shah-Deniz production can only help kick-start Nabucco’s first phase; but a kick-start also requires confidence that supplies would be available later for the second phase. This is also an issue of political signals. Implacable-looking U.S. opposition to development of Iranian gas is depriving the Nabucco project of that source, despite Washington’s equally ardent well wishing for Nabucco. The United States is threatening sanctions against Austria if the latter proceeds with gas field development in Iran. Washington is also asking Turkey to give up the memorandum of understanding it recently signed with Iran on gas field development and supplies for the Nabucco project (Turkish Daily News, The New Anatolian, September 19).

In this situation, Turkmen gas has become the fallback option for the projected pipeline. However, this issue is clearly beyond the ability of the five countries in the consortium to resolve. Russia has recently made some further strides in controlling Turkmenistan’s gas export and gas field development (see EDM, May 16, 17, June 5, 7). Only high-level engagement by the United States and the EU can change this situation in the West’s favor through Nabucco. The years since 2002 have been wasted in this regard, leading to a real crisis of confidence in the Nabucco project and a temptation by some European countries to seek bilateral deals with Russia. Along the proposed Nabucco route, only Romania has remained steadfastly loyal to this project during these years.

That crisis of confidence has been overcome thanks to the demonstration of coherent planning at the Budapest conference just held by all players. However, confidence could not possibly have been fully restored from one day to the next at this event. Key participants mused aloud in media interviews that Russian gas volumes — that is, Russian-delivered Central Asian gas — may after all be necessary for making the Nabucco pipeline viable.

For example, four different news agencies cited Hungarian Economics Minister Janos Koka as suggesting that Russia be given access specifically to the Nabucco pipeline, if not enough gas becomes available to it from Central Asia or Iran (Reuters, Dow Jones, AFP, September 11). And Hungary may continue looking at Blue Stream-Two in such a situation (Nepszabadsag, Portfolio Hungary, September 17). Similarly, EU Nabucco project coordinator Jozias van Aartsen, Nabucco general director Reinhard Mitschek, and Gaz de France top executive Jean-Marie Dauger underscored the need to dispel the real concerns about the availability of sufficient gas to justify the investment in building the pipeline (Financial Times, September 17, 18).

These are some of the strategic issues that need to be addressed by Washington and Brussels convincingly in the wake of the conference, building on its momentum and weighing in at the highest official level.