The Nabucco Alternative

THE NABUCCO ALTERNATIVE
Nick Iliev

Sofia Echo
Jan 16 2009
Bulgaria

How real are Europe’s hopes for natural gas diversification?

SIGNING UP: The contract with the sixth company joining the Nabucco gas
pipeline project, Germany’s RWE Group was signed on February 5 2008
in Austria. Five companies that are already part of the Nabucco Gas
Pipeline International have now accepted a sixth partner, who will have
an equal stake in the pipeline. The other members of the consortium
are Turkey’s Botas, Bulgaria’s Bulgargaz, Transgaz of Romania,
Hungary’s Mo and Austria’s OMV Gas. Signatures under the document put,
starting right, Bulgaria’s Economy and Energy Minister Petar Dimitrov,
Turkish Energy Minister Hilmi Guler, Austrian Economy and Labour
Minister Martin Bartenstein, Romanian Economy and Finance Minister
Varujan Vosganian, Hungarian State Secretary Gabor Diossy. Photo:
ReutersPlans for gas diversification, backed by Europe and by the
United States, are, theoretically at least, the only way to ensure
constant, reliable and cheaper energy supply for the continent and
Bulgaria in particular. Europe wants to reduce its dependence on the
140bcm (billion cubic metres) of gas it currently receives from Russia.

The idea is to build a new pipeline, which is not controlled by
Gazprom, the Russian monopolistic company that already controls 145
000km of gas delivery systems. The new pipeline would be built on
the strategic stretch between Russia and Iran, the two countries with
the world’s largest reserves of gas, to central Europe. "If we have
a dominant company like Gazprom trying to influence all inroads of
gas to Europe, we need to develop an alternative to the supply of gas
from Russia," says a senior European Commission official involved in
energy policy. Given the worsening fallout from the Russia-Ukraine
dispute, as well as the impact of last August’s Russia-Georgia war
on Caspian energy security, the Europeans are trying to accelerate
the Nabucco plans.

"We have good reason to believe that Nabucco will fly," says Reinhard
Mitschek, executive manager of the Nabucco consortium as quoted by
the Guardian.

The Nabucco pipeline project, however, appears fundamentally flawed
from the outset. "This is an attempt at reverse engineering in
pipeline development," said a senior industry source. The worry
is that before countries commit themselves to ivesting billions in
building a complex pipeline network and installation, they have to
find the resources first, or in this particular case – the gas –
and then build the pipeline. With Nabucco it is the other way around.

Pierre Noel, an energy analyst at the European Council on Foreign
Relations, claims that the concept is flawed because it is ludicrous
to imagine that once you build a pipeline over a land that has little
or no resources, the gas will start to flow. Yet this appears to be
what Brussels is counting on – the one feasible alternative route of
gas diversification that will save Europe from the monopoly of Gazprom
and the new potent Russia that has been using its vast supplies of
energy as a means of policy making.

Nabucco was originally planned to transport natural gas from Turkey
to Austria, via Bulgaria, Romania, and Hungary, running from Erzurum
in Turkey to Baumgarten an der March, a major natural gas hub in
Austria. This pipeline is a diversion from the current methods
of importing natural gas solely from Russia which exposes EC to
dependence on the Kremlin and the whim of its practices. The project
is backed by the European Union and the United States. The Americans,
in particular, have always insisted that Europe – and particularly
Bulgaria – ought to diversify their supply and not rely solely on
one source. According to Eurasianet.com, the pipeline will connect
Erzurum with the Tabriz-Erzurum pipeline, and with the South Caucasus
Pipeline, connecting Nabucco Pipeline with the planned Trans-Caspian
Gas Pipeline.

Construction of the pipeline has been postponed many times, principally
because it appears to be a highly risky business calculation. From
2008 it has been forced back to 2010, and this, of course, is far
from certain. It is estimated to cost eight billion euro. Brussels
has already spent millions of euro on research for a pipeline from
Turkey’s eastern border through Bulgaria, Romania, and Hungary into
Baumgarten on Austria’s border with Slovakia.

The paramount question remains: is Nabucco worth all the effort?: "The
most important issue regarding this project is to obtain enough gas,"
said Elmar Mammadyarov, Azerbaijan’s foreign minister, as quoted by
the Guardian. "This gas is expected from Azerbaijan, but Gazprom is
competing fiercely for the Azerbaijani prize in a bidding war with
the Europeans, offering above-market prices for the gas while the
Kremlin dangles the political carrot of arranging the return of the
disputed enclave of Nagorno-Karabakh to Baku’s control. The Russians
have offered a deal, but there are different options on the table. At
the end of the story, it’s our gas."

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Bulgar ian President Georgi Purvanov has been one of the main
campaigners for the Nabucco project despite the opposition’s claims
that he has had Russia’s South Stream project as a priority.

The end of 2008 saw Purvanov visiting several countries that could
potentially provide natural gas supplies for Nabucco. On December
19 he paid a visit to Turkmenistan where, on conferring with his
counterpart Gurbanguly Berdimuhamedow, he said that Bulgaria was
ready to buy two billion cu m of natural gas from the country every
year. Turkmenistan has the world’s fifth-largest reserves of natural
gas and only its underdeveloped pipeline infrastructure prevents it
from being a more important player on the global market.

On December 4 Minister of Economy and Energy Petar Dimitrov met
Egyptian petrol minister Sameh Fahmi to negotiate the supply of one
billion cu m of natural gas from Egypt after 2011. The supply will be
made feasible via pipelines running through Greece, Turkey and Italy,
although an alternative route is also possible through the Nabucco gas
pipeline. In January 2009 Bulgarian Prime Minister Sergei Stanishev
will visit Egypt where he will complete and sign a memorandum of
co-operation with Egypt – specifically in the sphere of energy.

Earlier in 2008 Bulgaria had sealed gas supply deals with Azerbaijan
and Uzbekistan.

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