NABUCCO: an empty pipeline, an empty dream

The South Stream’s main competitor, the Nabucco Pipeline cannot solve supply issues and other important issues to make it viable and thus the project, for all intents and purposes is dead. This is despite the irrational fear of many Europeans when it comes to depending on Russia for gas.

The head of the National Energy Security Fund Konstantin Simonov believes this defies common sense. In an interview for the Voice of Russia he said the EU has admitted that the project (Nabucco) is complicated and troublesome as it has no resource base. He said investors need to know where the gas is coming from and who is going to buy it. However in the case of Nabucco there is no source; in other words: no gas means, no investment and no investment means, no project. For this reason Nabucco is often called a “paper” pipeline because it still has no contracts with gas suppliers.

Initial dreams of possible sources

Initially Nabucco designers eyed a vast list of possible gas suppliers but for one reason or another none of them panned out.

For a start Iran, which holds the world’s second largest reserves after Russia, has political troubles, among them UN sanctions which ban investment into its gas sphere and even talks with suppliers.

There was also Turkmenistan which also has large reserves but has legal issues which came into play.

Another problem was that the Caspian Sea pipeline needs the approval of all 5 states that control the waters.

Nabucco even considered Egypt but their plans were shattered by the Arab Spring.

Some considered Iraq hoping to get 15 billion cubic meters from it. Iraq has reserves equal to those of Kazakhstan and Uzbekistan but exploration was suspended long ago. Iraq is also politically risky as the country may split into Sunni, Shiite and Kurdish parts. Al-Qaeda also plays a part in the region as it promises 100 attacks to revenge its killed leader Osama bin Laden.

Which leaves Azerbaijan as the sole viable supplier and it’s being torn apart by the South gas corridor projects.

“Azeri gas is also claimed by ITGI project (Turkey - Greece - Italy) and TAP (Trans Adriatic pipeline). These projects are enough to move Azeri gas to the European market but they forget that Russia is ready to buy it all at a more attractive price. Azerbaijan has made no decision yet as it’s trying to bargain to get both economic and political benefits says analyst Konstantin Simonov.

President of Azerbaijan’s State Oil and Gas Company Rovnag Abdullayev says that Baku is planning to boost yearly gas output to 30 billion cubic meters by 2015 and to 50-60 billion by 2020. These forecasts trigger a certain amount of skepticism given that last year marketable gas output turned out to be 10 billion cubic meters less than planned on paper.

The commissioning of Shah Deniz stage 2 was originally set for 2012 but was later postponed to 2017. In all likelihood, it could be put off again. That means that the rated capacity of 16 billion cubic meters a year can be reached only by 2025. For now, neither the technical development model, nor the commercial terms of future supplies have been approved.

The total capacity of the three projects is some 50 bn cubic meters of gas a year but the question is whether Azerbaijan has them. Its gas reserves are not transparent. Official statistics said that in 2010 the country had only 27 billion cubic meters and the plans to double the amount by 2020. So it means that this gas can’t be regarded as a long –term factor in the European gas balance.

Now Europe can count only on stage 2 of the Shah Deniz project –Azerbaijan’s main gas field. The stage needs great sea depths on the exploration sites and deeper gas occurrence compared to the first stage. The project is costly being worth 20-22 billion dollars. First it was planned to be launched in 2012 but then was postponed till 2017 and may be moved further. Thus, the needed amount of 16 billion cubic meters a year can be reached only by 2025 and no technical or commercial terms have been agreed upon.

Today Iran is Azerbaijan’s major gas recipient. This year, Iran will receive 5 billion cubic meters of gas, Russia – 2 billion, and Georgia – 0.7 billion. As for European countries, only Bulgaria can count on 1 billion cubic meters of Azerbaijani gas as of 2014.

In addition, Azerbaijan is faced with the problem of Nagorno-Karabakh. Given the situation, the oil and gas issue can be used as a weighty argument in this political battle. Baku has said on several occasions that the gas-thirsty EU should support Azerbaijan, not Armenia, in the dispute over Nagorno-Karabakh. But whether Brussels is prepared to side with Baku remains to be seen.

At the very least, Nabucco has chosen its main supplier- Azerbaijan and now the parties are in protracted talks with no results. Meanwhile, Azeri gas is also being eyed by Russia, which can deliver it to Europe via the South Stream.

No gas-no contracts, that’s the idea. No contracts-no bank loans - these are Nabucco’s troubles. However, gas is not the only problem. All three of the above-mentioned projects start in Turkey which is not a supplier but a capricious transit country. Therefore, Europe is boosting the country’s significance which has already hinted at EU membership in exchange.

The South corridor also needs close cooperation between its members and large investments into the project. It enjoys political support but no resources or private investors. Plus the project is fraught with transit risks while the parties bicker which further reduces already small chances for success.

The Voice of Russia, November 8, 2011