09-06-08 The troubled history of the EU-inspired Nabucco pipeline continued when the Hungarian ambassador, Mihaly Bayer, stated that Iranian gas would be critical to feed the pipeline in order to reduce dependence on Russian supplies. While such a statement may prove to be true, at this stage, the chances of the pipeline ever being built look increasingly remote.
The EU has been trying for some time to find supplies for the Nabucco pipeline, which is designed to be a new 'gas corridor' carrying gas from Central Asia via Turkey to the EU in an attempt to diversify gas supplies away from Russia. While Central Asia remains a "going concern" for the EU, the European Commission (EC) has claimed that it will also be able to import 7 bn cm of gas from Iraq and Egypt via Syria in the next few years.

The "strategic view" is to see the Arab Gas Pipeline, which itself links Syria via Jordan to Egypt, extended to Turkey and Iraq by 2009. This, in turn, would link into the 30 bn cm per year Nabucco pipeline, connecting the EU to new gas sources in the Caspian Sea and Middle East.
The stumbling block is that some 5 bn cm of the supposed 7 bn cm to be fed from the Middle East will come from the Akkas field in Iraq, which, at this stage, is largely undeveloped. Furthermore, most International Oil Companies will want to see the Iraqi Oil Law passed before they recommence operations in the country, with security issues remaining far from settled.

Egypt will also find it hard to increase its pipeline exports to Europe, not least because the domestic gas market is growing rapidly. President Mubarak will also be tempted to allow further LNG expansion to offset companies for subsidized domestic prices, rather than sending it through the Arab Gas pipeline.
Booming consumption along the proposed supply route in Jordan, Syria and Turkey presents further difficulties to realizing Egyptian supplies, while Turkey also remains determined to leverage its position as a regional energy hub for political and commercial effect, rather than simply signing standard transit deals for gas. This will inevitably continue to drag down any supply deals for Nabucco.

That said, the EU managed to strike an easier bargain with Turkmenistan to feed Nabucco with 10 bn cm a year. However, the problem here is that Ashgabat probably does not have the capacity to deliver such reserves amid competing supply contracts with Russia and China.
The EU is also looking at the Shah Deniz project in Azerbaijan as a potential supply source for Nabucco, although negotiations appear to have been superseded by the National Iranian Gas Company, which has secured a "very large" amount of gas from the State Oil Company of Azerbaijan. Gazprom has also recently approached Azerbaijan as a potential supply source to feed the competing South Stream pipeline.

While this hardly constitutes a "fatal" blow to Nabucco, (with costs now hitting EUR 7.9 bn), at best, it makes it increasingly likely that it will resemble an 'enabling project' requiring gas from multiple sources drawn from the Middle East and Central Asia, should the pipeline ever be built. Although Iran is currently a net importer of gas, it easily has the natural reserves to become a net exporter in the next five years, provided the necessary investments are made, making it a serious option for the EU to consider.
However, to say that the politics of this option remain "unfavourable" is an understatement, not least as the Iranian nuclear program is fast re-entering political debate in the US. The EU would also need to seriously consider whether, from a political perspective, Iranian supplies would be a more desirable option than an increased dependence upon Russian supplies. The EU is well aware that the proposed extension of Blue Stream, and political buy-in from South Stream states, already gives Russia a major strategic advantage over Nabucco in any case.

Russia is also making life difficult for Nabucco downstream, following Gazprom's joint venture with Austria-based OMV for the Baumgarten Central European Gas Hub (CEGH) (this is the trading platform in Austria through which Nabucco supplies would be channelled). The fact that OMV is also trying to acquire Hungary-based MOL (both of which currently hold a 16.7 % share in Nabucco) would give OMV a blocking majority of 32 % on the Nabucco project if the merger were to be successful. This underlines the limited prospects that Nabucco has of ever being genuinely devoid of Russian influence.
On this note, Turkey has been the first state to raise its head above the parapet by suggesting that the Nabucco consortium should consider what Gazprom might be able to offer by way of supplies. While such a proposal was fiercely battered down by the EU, the bottom line is that the additional 7 bn cm per year that might (or indeed, might not) materialize from the six-party Middle East consortium for Nabucco, largely fails to change the fact that Europe already takes 160 bn cm annually from Russia.

Therefore, rather than putting considerable effort into "chasing shadows" in its external energy policy, the EU would be better off if it focused on developing an integrated internal market to reduce bilateral pressures felt from key suppliers in the form of Gazprom in the East and West, and Sonatrach in the south, by forging greater European solidarity and negotiating positions.
However, even if the EU can prove that it would, hypothetically, be able to fill up Nabucco from multiple sources, it makes it no more likely that the pipeline will ever actually be built.