EurasiaNet Business & Economics - The Future of Nabucco Pipeline Up in the Air

BUSINESS & ECONOMICS

THE FUTURE OF NABUCCO PIPELINE UP IN THE AIR
Khadija Ismayilova 12/05/07

The prospects for construction of the Nabucco pipeline -- a route that would help Europe reduce its energy dependency on Russia -- appear to be fading. A decision on whether to proceed with the project has been postponed until early 2008 amid questions of whether the proposed route can be economically viable.

The five members of the Nabucco consortium opted recently not to make a final decision on the project until the first quarter of 2008. They originally had been expected to make a determination by the end of 2007. The pipeline, envisioned to stretch about 3,300 kilometers, would cost an estimated $5-6 billion. It would enable European Union member states to bypass Russia in importing gas from the Caspian Basin and Middle East, via Turkey and Central Europe. [For additional information see the Eurasia Insight archive].

Numerous logistical hurdles -- including issues related to financing, as well as questions about adequate supplies -- remain in Nabucco’s path. Russia is also a determined foe of the project. According to the most recent timetable, construction on Nabucco would begin in 2009 and wrap up three years later.

Nabucco’s future would seem to be tied to that of a proposed trans-Caspian pipeline (TCP), which would facilitate the delivery of gas from the Central Asian states of Kazakhstan and Turkmenistan to Azerbaijan, where those supplies could be funneled through existing pipelines to eventually link up with Nabucco. [For background see the Eurasia Insight archive]. While both Astana and Ashgabat have expressed interest in TCP, there are no indications that a pipeline pact is imminent.

Andre Mernier -- secretary general of the Energy Charter, a 56-nation organization dedicated to promoting global energy cooperation -- has gone on record as saying Nabucco may be impractical. "The project’s implementation in uncertain circumstances in areas close to the Black Sea region is extremely difficult," Mernier said in a late October interview with the Turkish newspaper Cumhuriyet. He also suggested that the Caspian Basin may not possess sufficient reserves to support existing pipelines, in addition to Nabucco.

Ilham Shaban the head of the Baku-based Energy Research Center said it is too early to bury the Nabucco project. However, he agrees that the pipeline, with a planned capacity of 30 billion cubic meters (bcm) per year, requires addition feasibility studies. "First of all it needs to be clarified which energy resources will be carried by this pipeline, and [determine whether] there is enough to make the pipeline profitable," Shaban told EurasiaNet.

"So far four countries are considered as potential suppliers for the pipeline," Shaban continued. "Three of them are Azerbaijan, Kazakhstan and Turkmenistan [and] their gas resources are not clearly defined yet. Iran, the fourth country, is considered an unreliable source for energy, due to [international] sanctions."

European Union officials insist that Iranian participation in Nabucco is not under consideration at this time. "For the realization of Nabucco, Iranian gas is neither necessary nor looked for," EU spokesperson Ferran Taradellas Espuny said during a recent news briefing in Brussels. Despite the fact that a US intelligence finding determined that Iran is not striving to make nuclear weapons, the Bush administration has made it clear that Washington intends to keep economic pressure up on Tehran. [For background see the Eurasia Insight archive].

Azerbaijan has already declared its readiness to invest in Nabucco, but Shaban believes that Baku’s stance rests more on political than economic factors. It may be that the fate of the TCP route will have to be determined before a final decision is made on Nabucco. Sabit Bagirov, the former president of Azerbaijan’s State Oil Company (SOCAR) has stated that Nabucco’s viability depends on the ability of Central Asian nations, especially Turkmenistan, to supply the pipeline.

Thus, the answer to whether Nabucco becomes reality may ultimately be found in the capital of Turkmenistan, Ashgabat. Turkmen leader Gurbanguly Berdymukhamedov has repeatedly expressed interest in opening new routes for Turkmen gas exports. However, many analysts suspect Berdymukhamedov is making more promises than he can keep. [For background see the Eurasia Insight archive].

Bagirov is one of several Azerbaijani experts who believe that Nabucco could be built, even if Turkmenistan doesn’t participate. Azerbaijan alone might be able to supply Nabucco, given that the reserves contained in the Shah Deniz field were recently revised upward by 20 percent. According to Rovnag Abdullayev, SOCAR’s current chief, Shah Deniz now has confirmed gas reserves of over 1.2 trillion cubic meters, along with 240 roughly million tons of gas condensate. Production at Shah Deniz began in late 2006 and is expected to total 2.8 bcm this year, rising to 8 bcm in 2008.

Members of the Nabucco consortium, meanwhile, continue to maneuver. One consortium participant, Hungary’s oil and gas company MOL, announced December 5 that it was negotiating with other Central European energy companies to form a regional gas distributor. The rationale behind the initiative is that a joint operation would likely make it easier to attract financing for infrastructure projects, such as Nabucco.

Editor�s Note: Khadija Ismayilova is a freelance journalist based in Baku.

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