Highlights
– Accord could lessen Russia’s stranglehold on EU natural gas market
– Participating nations to sign agreement in Ankara in June
– Securing adequate exports from Central Asian suppliers remains significant challenge
Russia’s stranglehold on the European Union (EU) natural gas market suffered a potentially long-term setback at an energy summit in Prague last week. Leaders from key gas suppliers Azerbaijan and Egypt and key transit countries Georgia and Turkey agreed to sign an intergovernmental deal with the EU, providing the necessary political and technical support for the construction of the €9bn ($10bn) Nabucco pipeline project. Producer countries have verbally agreed to dedicate specific volumes of gas for the EU via the corridor. In return, the EU agreed to boost trade and provide transportation support to the gas transit countries of Turkey and Azerbaijan (Source).
Nabucco’s newfound political agreement will unsettle Russia. Russia’s rival “South Stream” Black Sea pipeline, once believed to be more viable than Nabucco, is now in jeopardy after transit countries demanded better terms ahead of a deal signing on May 15, 2009. Consequently, Russia will likely look to exert political pressure and complicate the Nabucco agreement. Expect Russia to resort to old market controlling tactics and threatening rhetoric against some Nabucco participating nations in the medium to long-term.
Southern Corridor Network
As one of three pipelines of the EU’s “southern corridor” initiative to lessen Russia’s natural gas market dominance, Nabucco’s more than 2,000-mile pipeline proposal could transport exports from Central Asia, the Caucasus and the Middle East to Central Europe.
The “southern corridor” plan also includes a proposal for a pipeline under the Black Sea from Georgia to Romania, and another pipeline connecting Turkey, Greece and Italy (ITGY). The EU assesses that the three pipelines could bypass Russia and provide 10 percent of the EU’s total gas needs by 2020 (Source).
Nabucco Potential
EU officials are hoping Nabucco will become operational by 2014. In principle, the Nabucco pipeline would supply roughly 5 percent of EU natural gas demand.
• EU natural gas demand measured 580 billion cubic meters in 2007, and is expected to grow to 750 billion by 2030.
Managing the European consortium planning the project is the Austrian oil and gas firm OMV. Five national energy corporations also involved are Turkey’s BOTAS Petroleum Pipeline Corporation, Bulgaria’s state owned Bulgargaz, Romania’s Transgaz, MOL of Hungary and the German energy group RWE.
The agreement provides a boost to the stalled Nabucco pipeline project. Ongoing disagreements have plagued the project’s advancement since 2006, with EU and Turkish officials often at odds over pipeline transit fees and taxes. Nevertheless, with roughly half the pipeline planned for Turkey, participating nations will likely sign the agreement in Ankara on June 25, 2009.
And the Race Begins
The agreement could remove the lingering political roadblocks that have scared away major investors.
A key challenge for EU officials comes with securing adequate supplies to feed the Nabucco pipeline. Despite Turkey’s willingness to begin construction, major suppliers Kazakhstan, Turkmenistan, and Uzbekistan failed to sign the declaration, likely due to Russian pressure. Three other major natural gas suppliers in the region, Iran, Qatar, and Iraq could also play major roles in supplying the pipelines, but failed to attend last week’s summit due to political disputes.
Hoping to counter Russian influence, the EU is offering political, economic, and technical support for building a trans-Caspian gas pipeline from Turkmenistan to Turkey, enabling a direct feed from Turkmenistan, Kazakhstan, and Uzbekistan to the Nabucco gas pipeline. European Commission President Jose Manuel Barroso recently stated talks to diversify Turkmenistan’s energy export routes were going well. A Turkmen Foreign Ministry delegation plans to travel to Brussels on June 4 for further talks on the issue.
In the run up to the June 25 signing in Ankara, Russia will likely look to expedite the South Stream pipeline process. If the South Stream’s role disputes continue beyond June, expect Russia to politically and economically pressure participating Central Asian nations in the medium to long-term.
