Nabucco, South Stream face off in Austria

Gazprom plans to close negotiations with Austria in the near future for the South Stream gas pipeline and sign an intergovernmental agreement, the CEO of the Russian gas monopoly, Alexei Miller, said on 19 January. “It is not surprising: ever since the idea of the South Stream project was conceived, Gazprom has viewed Austria as one of its high priority potential partners,” Tatiana Mitrova, head of Moscow’s Centre for International Energy Markets Studies, told New Europe on 20 January. “This is primarily due to Austria’s well-developed gas infrastructure (Baumgarten hub and underground gas storage facilities are located there). A new gas exchange in Vienna, which envisages Gazprom’s participation, is another reason for choosing Austria,” she noted.

“There is a long history of relations and negotiations between Russia and Austria in the gas sphere; and these have developed in varying ways. However, by now Austria’s negotiation position has weakened somewhat and Russia’s, on the contrary, has become stronger. Firstly, this is due to the signing of the latest intergovernmental agreement between Russia and Slovenia. Since Russia has now secured agreements on the route of the South Stream pipeline with all other countries, it can access the Italian market. It is entirely possible to enter the Italian market bypassing Austria. However, the situation will be different if the second branch of the South Stream pipeline to Austria is constructed. Even so, there are options – it could become a full-scale trunk line, or a small scale offshoot for Austria,” Mitrova said.

Constant delays and lack of clarity in respect to the Nabucco pipeline project have not added weight to Austria’s negotiation position. “Talks continue, and, in my opinion, the Russian side is being constructive to the utmost degree. It is not clear-cut whether Austria needs to take part in both South Stream and Nabucco projects. For the country as a whole, participation in two projects would not only serve to strengthen its position as a gas transit country (for gas to Europe), but also make it into one of the leading gas hubs in Europe, with all of the associated benefits,” she said.

Austrian companies are, however, another matter. “They are unlikely to want to take part in both projects simultaneously, since they are mainly concerned with the payback period. And in this sense the Nabucco project appears to be more risky, due to uncertainty in respect of its resource base, long known to be an issue,” Mitrova said.

Russia hopes to win Austria’s support for South Stream. A source at the Austrian Economy Ministry told New Europe that the Austrian and Russian governments are currently negotiating an intergovernmental agreement but no date has been set for signing the deal. In November, Austria’s Council gave a mandate to start negotiations. “Since then we can say we are in official negotiations so we made progress,” the source said.

Konstantin Simonov, director of the independent National Energy Security Fund in Moscow, told New Europe on 20 January that given the increase of European consumption the best solution will be the integration of Nabucco and South Stream into one project. He said Europe will need more gas. “This struggle between Nabucco and South Stream is a problem of Europe and maybe after the start of the pipeline from Turkmenistan to China, Europe can understand that’s the real problem, because for a long time Europe thought the main problem was to build pipes without Russia,” Simonov said. “During several years we had a serious battle between Russia and Europe, between South Stream and Nabucco, and during the same time China — there were no conference, no debates, no articles in mass media — they were building, building and building and they already finished this pipe. We are still in battle, but the Chinese built this pipe,” he said.

“We must forget about this battle between Nabucco and South Stream because in 2008-2009 this battle was one of the main stories in the European energy sector,” he said, calling for energy cooperation in the south of Europe. “For example Russia can build the pipe to Turkey and we can integrate it to Nabucco and okay Nabucco can also take some gas from Azerbaijan,” he said. “Nabucco wants to show there is gas and there are a lot of strange decisions. For example, I think it is a very stupid idea to buy gas in Egypt because Israel is thinking that Egypt is the main threat to energy security of Israel but Europe wants to buy gas in Egypt and the political risks are very high. Another idea is Iran, but the political risks in Iran are also very high,” Simonov said. “The best idea is to have integration of South Stream and Nabucco in Turkey and we can return to the idea to build the pipeline to Turkey. Of course, there will be the problem of Turkey because Turkey can be the second Ukraine,” Simonov said, adding that Ankara could blackmail Russia and the EU since all pipelines to the south of Europe would transit Turkish territory.

He said both the EU and Russia are trying to secure gas supplies from Azerbaijan – the EU for the first stage of Nabucco and Russia so that it can block Nabucco. “Europe made all these mistakes and Russia is making the same mistakes because Gazprom wants to buy all gas from Shah Deniz. Gazprom wants to pay very high price for Azerbaijan. Azerbaijan will use this situation to blackmail Europe, to blackmail Gazprom and that is why this competition is necessary for Azerbaijan but not for Russia not for European Union. We will pay Azerbaijan very high price, Azerbaijan will earn a huge amount of money. It’s not a very good solution for Russia. But why are we trying to buy this gas? Because we want to struggle with Nabucco,” Simonov said. “That’s why it is my idea is that it is a European mistake and a Russian mistake because they we’re still thinking that South Stream and Nabucco must be the competitive pipelines.”

But for now EU-Russian energy relations resemble as Greek MEP Anni Podimata, vice chairwoman of the European Parliament’s Committee on Industry, Research and Energy, eloquently put it “an electrocardiogram.” “Both Russia and the EU need to work in improving their relations,” she told New Europe on 22 January.

By Kostis Geropoulos

Source: New Europe, 24 January 2010