Russia stays one step ahead

The viability of that project, an anti-Russia pipeline the European commission describes as a "strategic priority" designed to bring gas from Central Asia and the Middle East to Europe, has been made ever less likely in recent months. Hungary's decision to support a rival Gazprom line – an extension of the Blue Stream link between Russia and Turkey – instead of Nabucco, was a big blow (PE 4/07 p5).

But the latest deal in Central Asia could kill off the project altogether. EU leaders envisaged gas from Turkmenistan and Kazakhstan, delivered through a trans-Caspian link, feeding into a pipeline from the Shah Deniz fields, in Azerbaijan. The South Caucasus Pipeline from Shah Deniz to Turkey came on stream earlier this year, with spare capacity earmarked for Central Asian gas from across the Caspian. But the prospect of that hope becoming reality receded greatly with last month's tri-party agreement.

A wider deal
The protocol signed in Turkmenbashi lays the framework for a wider deal to be ratified in September, when the companies to develop the line through Russia will also be named. Gazprom will pay $100/'000 cubic metres (cm) of gas from Turkmenistan from 2009, when exports will be 10bn cm/y. That will double to 20bn cm/y by 2012.

China will also be disappointed to see Turkmenistani gas heading north to Russia. Beijing has long sought to develop an import corridor from Turkmenistan to supply its market. But the surprisingly slow demand for imported gas in China could have pushed Turkmenistan to accept the Russian offer.

The US' energy secretary, Samuel Bodman, says the agreement is bad news for Europe, given that it "concentrates more of the gas in the hands of one supplier". The US has worked hard to develop influence in Central Asia, precisely to stop an agreement of this kind happening.

For Russia, it is good news. Aside from the strategic advantage over the EU that it provides in the region, the gas itself will be useful for Gazprom as it seeks to prevent an expected domestic supply crisis. According to estimates, Gazprom could be short by up to 100bn cm/y by 2010.

The deal highlights, again, a number of problems in the EU's strategy to import gas from Central Asia. Brussels has been increasingly worried about the reliability of Russia's energy exports to Europe in the light of the brief interruptions to supplies in 2006 and 2007 during disputes between Russia and Ukraine and Belarus, respectively.

Central Asian gas, it hoped, would mitigate those risks. That has always been debatable. The plans of Turkmenistan's Kurbanguly Berdymukhamedov, or Kazakhstan's strongman Nursultan Nazarbayev, hardly deserve greater faith than Moscow's. Throwing another egg into an unreliable basket, the EU had also hoped to see Iranian gas come through Nabucco, too.

Even if the argument to import gas from those countries is sound, the assessment of Turkmenistan's reserves is not. Or perhaps it is. No-one knows. As Konstantin Simonov, general director of Russia's National Energy Security Fund, says: "Turkmenistan claims every week that it has found a new Shtokman. We don't really know how many Shtokmans they have." Nor are there any guarantees that the Central Asian countries would be willing to sell their gas to Europe more cheaply than Russia does.

In any case, Russia also believes it has the power – legal, political and, possibly, military – to stop a trans-Caspian pipeline from happening. Developing such infrastructure would be technologically tricky anyway. But deciding how to divide the Caspian Sea between its littoral states is proving more difficult still. Russia has no intention of allowing any kind of agreement over the maritime borders that will enable development of a pipeline under the sea.

Whether the Central Asian deal truly kills off Nabucco remains to be seen. There could yet be life in the "virtual pipeline", as Gazprom's Alexander Medvedev has labelled it. In Hungary, the controversy over the Socialist government's backing of the Blue Stream extension rumbles on. A reversal of policy is not out of the question, say some commentators, despite more recent government statements to the contrary.

An intriguing possibility
And there is another intriguing possibility. Vladimir Socor, an analyst at the Jamestown Foundation, says Turkmenistan and Kazakhstan could develop a sub-sea Caspian connection piecemeal, without the need for approval from the other littoral states. A pipeline connecting Turkmenistan's Block 1, being developed by Malaysia's Petronas, with Azerbaijan's Azeri-Chirag-Guneshli oilfields would be the first piece. "Both are far out at sea, obviating the need for a coast-to-coast pipeline and making it very difficult for Russia to resist on legal grounds," says Socor. Once that infrastructure is in place, Kazakhstan could link up with that system through a pipeline to Turkmenistan that would not fall into the legal category of "trans-Caspian" either, he says.

The probability of such a plan is questionable. Russia has done a good job of ensuring former-Soviet states respect the wishes of Moscow, so stopping Turkmenistan and Kazakhstan from pursuing it is not out of the question. That reveals another difficulty for the EU: countering Russian influence in states that are strategically important to both Moscow and Brussels. Russia continues to act quickly and decisively where Europe pursues soft diplomacy, slowly.

At a Chatham House conference last month, Seán O'Regan, from the early warning unit of the EU council, reiterated how important the EU considers its Inogate programme, an initiative designed to develop an energy corridor from Central Asia to Europe. But it is yet to deliver much for Europe on the ground in that region. And O'Regan admits that as much as Brussels seeks to direct the EU's energy policy – either within or without its borders – "we can only advise".

As ever, the EU is aware of its deficiencies. Doing something about them is another thing altogether. The failure to build momentum behind the Nabucco project, admitted O'Regan, has become emblematic of the EU's energy-security problem.

Source: Petroleum Economist, June 1, 2007