In June officials from EU and Turkey said an imminent breakthrough looms on the draft of the text that will lay legal groundwork for the Nabucco pipeline project. News reports quoted the Turkish minister of EU Affairs, Egemen Bagis and EU Energy Commissioner, Andris Piebalgs saying they expect a deal to be finalized in July.

The $11.1 billion (€ 7.9 billion) project's major shareholders are under a consortium led by Austria's OMV and Germany's RWE, along with gas companies of the transit countries. Turkey remains on board and manages relations with other transit countries including Bulgaria, Romania and Hungary. One thorny issue has been that Turkey expects 15 percent share from natural gas to be carried through the Nabucco pipeline, for use in Turkey, not for resale.

Although the completion date for the pipeline is 2016, analysts say it may take 10 years before enough gas becomes available to fill a pipeline as big as Nabucco, which would have a capacity of 31 billion cubic meters, or bcm, per year.

Caspian Region

Commitment from the project's Caspian suppliers, including Azerbaijan, Turkmenistan and Kazakhstan, has not been fully secured.

Last Monday the project received a major blow because Azerbaijan, one of the project's main suppliers of natural gas, signed a contract with Russia's Gazprom, committing a significant chunk of the country's annual gas production to be transported via a Gazprom pipeline to Europe.

Russian President Dmitry Medvedev travelled to the capital of Azerbaijan, Baku to oversee the deal's signing. Gazprom CEO Alexei Miller and Rovnag Abdullayev, head of the State Oil and Gas Company of Azerbaijan signed an agreement to buy 500 million cubic meters of gas annually starting next year from the country's largest gas field Shah Deniz.

Azerbaijan produced 23 bcm of gas in 2008, and Azerbaijani President Ilham Aliyev pledged in January that the country would double gas production in the next few years. So the country's participation in the Nabucco project is still feasible.

Georgia doesn't have significant gas reserves but plays an important role as a transit country. The corridor of oil and gas pipelines from Azerbaijan will pass through Georgia into Turkey (see Baku-Tbilisi-Ezrurum pipeline on map).

Russia is eager to corner the Caspian market after it secured most of the gas supplies from its energy-rich neighbor Turkmenistan several years ago. But Russia's relations with former-Soviet Turkmenistan have recently soured. Russia said it would be incurring losses if it continued to buy Turkmen gas at current prices. The two countries are now in talks to review the terms of gas contracts.

Meanwhile, Turkmenistan's Foreign Minister was in Washington last week where he had meetings with the U.S. Special Envoy for Eurasian Energy Affairs, Ambassador Richard Morningstar raising hopes for the Nabucco pipeline.

Kazakhstan is not likely to participate in the U.S.-backed Nabucco project as Astana lacks sufficient export volume.

The Kazakh state's exports are already tied up to two major projects, according to Aset Magauov, Vice Minister for Energy and mineral Resources. "We intend to export 10 bcm of gas per year in the Trans-Caspian Gas Pipeline. The second project is with China. Therefore, we will think about this issue ... in regards to the available resources of Kazakh gas," the Kazakhstan Today news agency quoted Magauov as saying June 25.

Middle East

In May Nabucco consortium's OMV, of Austria and Hungary's MOL agreed to develop a gas field in Kurdistan, Iraq's semi-autonomous region. Under the deal OMV and MOL, with their regional partners are to invest $8 billion in Kurdistan's gas fields and believe they could eventually pump as much as 85 million cubic meters of gas, about half of which could eventually flow to Europe via Nabucco.

OMV and MOL each bought 10 percent of Pearl Petroleum, which is developing Kurdistan's Khor Mor gas field. However, energy contracts signed with Kurdistan are a thorny issue in Iraq and under debate.

Regarding supplies from Iran in an interview published on June 24 with the Russian Trend News, the U.S. Department of State Special Envoy for Eurasian Energy, Richard Morningstar said: "I can say we have no plans regarding Iran's involvement in this project at the moment or in the future."

However, Russian Prime Minister Vladimir Putin, said in March that the Nabucco project was not feasible without Iran's involvement. Iran is home to the world's second largest gas reservoir after Russia.

A bypass of Iran from this project would mean bypassing Iran's own plentiful reserves. European energy needs and security cannot be addressed without Iran's participation. Moreover, Iran is Turkey's closest neighbor geographically and hence the shortest route for the gas pipeline.

The 27 EU countries consume about 500 bcm of gas year, according to data from gas industry association Eurogas. When Nabucco pipeline comes online by 2013, its maximum capacity will be 31 bcm annually.

With Azerbaijan and Turkmenistan's supply contract with Russia, Kazakhstan's insufficient reserves and finally Iraq's Kurdistan contract, it is unclear who will supply the needed gas. There is also a great deal of ambiguity and uncertain regarding how much gas reserves do the Central Asian countries hold. Indeed there is concern that some of these countries don't have enough reserves to export.

Couple of points are clear though: Europe's dependence on Russian oil and gas supply is here to stay. Any contract expected to be signed this month on the Nabucco project will only fly if it also includes gas fed by Iran.

By Salman Ansari Javid

© Tehran Times 2009

 

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