Gas crisis casts fresh doubt on EU's Nabucco pipeline

Jan 29, 2009 01:00 AM

Leading energy experts on 19 January asked difficult questions in the European Parliament about the future of the EU's flagship Nabucco gas pipeline project, which is seen by many as a panacea for decreasing the Union's dependence on Russian imports.

Background:
The Nabucco pipeline project aims to bring Caspian gas to Vienna. Azerbaijan is seen as the project's most likely first gas supplier, while in future, it would also be brought from the Middle East. Gas would be shipped via Turkey, Bulgaria, Romania and Hungary. The pipeline is scheduled to start operating in 2013, but it is not yet certain that it will be built.
Continued hesitation by the private sector to finance the project, not to mention the brief war between Georgia and Russia in August 2008, means that Nabucco faces an uncertain future. Officially, the European Commission refuses to admit to any setbacks.

The project faces many obstacles, among which are the planned rival South Stream pipeline, supported by Russia's Gazprom. The Commission insists that Nabucco is not an attempt to find alternatives to Russian supplies, but a necessary additional channel. This position is confirmed by one of the companies central to the Nabucco project, OMV of Austria.
The gas crisis between Russia and Ukraine, which cut or disrupted gas supplies to 18 EU countries, did not appear to be a sufficient argument in favour of Nabucco among experts addressing the Parliament's foreign affairs committee.

At political level, at first it had appeared that Nabucco would gain credibility in light of the crisis. But MEPs were presented with a rather pessimistic draft report on EU energy security, in which Nabucco featured prominently. The report was presented just days before Hungary hosted a "Nabucco summit" in Budapest on 27 January.
The summit had raised hopes that the project could be re-launched. Indeed, the Czech Republic, which currently holds the six-month rotating EU presidency, has indicated it will push for Nabucco as one of its top priorities.

Professor Alan Riley of the Centre for European Policy Studies (CEPS) said the main question regarding Nabucco was "where the gas [was] going to come from". Lack of investment makes imports from Iran problematic as that country is still a net importer of gas, despite holding the world's third-largest reserves, he said. Besides, sanctions currently in place against Iran make the whole project appear more likely to be realised in the distant future.
As for Turkmenistan, Riley said there is reluctance on the part of that country's government to deliver gas to Europe, as it prefers to sell to Russia and also has China as an alternative client.

Regarding the issue of transit, Prof. Riley warned that Turkey, a key transit country, has huge domestic demand for gas itself, while legal disputes on the delimitation of the Caspian Sea could be used by Russia to block the project. He also said that financing Nabucco remained a challenge.
Dr Andrew Monaghan from the NATO Defence College in Rome, the author of the draft report, also voiced scepticism towards the project.
"If there is to be diversification, it remains unclear which sources and routes would be more beneficial and reliable," he argued. If one of the EU's aims is to enhance routes that are not controlled by Moscow, then there is a risk that the Union will compete in markets in which it is not familiar or well-placed, he warned.

As for the role of Turkey, Prof. Monahan warned that many of the existing diversification plans appear to centre on that country, and "therefore the question would be: how much this is real diversification?"
As he spoke, several MEPs were already aware of threats by Turkish Prime Minister Recep Tayyip Erdogan that Ankara might rethink its support for Nabucco if the EU refuses to unfreeze accession talks.
A key sentence of the report by the NATO analyst sounds paradoxical: "Further engagement with Russia is unlikely to be easy, but it is essential: other partners are beneficial, but cannot be seen as serious and substantial alternatives."

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