EKIP– Expert Club for Economics and Politics A Different Opinion
The Nabucco project may be named after a Verdi opera, but it was hardly ever intended as a prototype for the European soap opera industry.
Unlike soap operas that usually have a happy ending, the strategic gas pipeline, which aims to transport 31 billion cubic meters of Caspian and Middle Eastern gas to Central Europe, looks set to end tragically. This became clear in October-November last year, when one of the main partners in the project, RWE, admitted that the project did not have a good economic justification in the absence of a secure source of gas. In December, the consortium responsible for the gas pipeline refused to cooperate with Turkey and Azerbaijan on their alternative proposal to build the Trans-Anatolian Gas Pipeline (TANAP), connecting the Erzurum transit point with the Turkish-Bulgarian border. TANAP, estimated at 5 billion euros, will duplicate the Nabucco route in Turkey. Since the financing of the pipe will be carried out 80 percent by Azerbaijan, the project could have facilitated at least the financial part of the European Union (EU)-backed Nabucco.
Проблемът е, че новата турска тръба ще има капацитет само от 16 млрд. м³, далеч по-малко от стратегическите цели на Съюза. От тези 16 милиарда, 6 ще бъдат заделени за Турция, а само 10 ще продължат за Балканите и евентуално за газохранилището „Баумгартен” край Виена. Икономически това би обезсмислило една 3000-километрова тръба на стойност поне 5-6 милиарда евро. Освен това „Набуко” още от началото на своето съществуване като идея е бил замислян като стратегическа алтернатива на руските доставки за ЕС. С 10 милиарда м³, стратегическият аспект на проекта се губи. И все пак, партньорите в консорциума и най-вече, австрийската компания, ОМВ, която е вложила не само много средства, но и репутацията си в „Набуко”, продължават да промотират проекта, надявайки се, че сапунената сага ще има щастлив край. Затова и в началото на тази година, „Набуко” бе преконфигурен в „Набуко-запад”, като сега газопроводът ще започва на българо-турската граница, където ще се свързва с TANAP. След това той ще преминава по вече познатия маршрут – България-Румъния-Унгария-Виена.
In its shortened version, Nabucco-West hopes to win the approval of concessionaires at the Azerbaijani Shah Deniz 2 gas field, which is expected to start supplying the southern gas corridor in 2017. Diplomatic pressure on Azerbaijan from the US and the EU followed immediately after the strategic alliance between TANAP and Nabucco. The EU’s special envoy in Baku, Roland Kobia, insisted that Shah Deniz 2 should not delay its decision, stressing that the international Caspian consortium must also assess the strategic importance of the future gas infrastructure, not just its profitability. Like Kobia, the US special envoy for Eurasian energy, Richard Morningstar, was quoted in an article in the Wall Street Journal as saying that while three years ago the US was focused on Nabucco, today America realizes that there is not enough gas to power the strategic objectives of the project. That's why the US is broadening its focus, putting on the table, in a more general image of the future "Southern Corridor", all possible projects starting in Baku. But isn't it already too late?
The battle for the “Southern Corridor” is intensifying
The US prefers to support Nabucco-West because it will inject liquidity into the Balkan gas market, which is crucial for countries like Bulgaria, Serbia and Bosnia, which are almost 100% dependent on Russian gas supplies. Thus, the US focus shifts from reducing Russian pressure on Germany and Central Europe, where natural alternatives in the form of shale and liquefied gas are changing the energy market, to Southeastern Europe, which still remains isolated from new trends.
In this endeavor, the US and the EU are hampered not only by the lack of sufficient Caspian gas, but also by competing projects. Five projects are competing for supplies from Shah Deniz 2: TANAP (respectively Nabucco West), BP’s South East European Pipeline (SEEP), the Trans Adriatic Pipeline (TAP) and the Turkey-Greece-Italy Interconnector (ITGI). The latter has already been excluded from the competition, which was a major blow to both the Greek energy company DEPA and Bulgaria, which had hoped to feed the Komotini-Stara Zagora reverse link with Azeri gas. The BP project is also likely to be abandoned, as its route duplicates that of the original Nabucco, with only 10 billion m³ promised. Azerbaijan would not want to risk an overly ambitious project, which, unlike Nabucco, does not have strong European political support.
Some energy specialists, including Vladimir Sokor and Michael Clair, point out that the TAP project remains the one with the greatest chances. It is led by the Norwegian energy giant, Statoil, which also owns 25.5% of the consortium exploiting the Shah Deniz fields. The project will connect Albania with Italy via a gas pipeline along the bottom of the Adriatic Sea, with the aim of transporting 10 billion m³ of Azerbaijani gas, which will arrive via the already built reverse connection between Greece and Turkey. Since the project will largely use existing infrastructure, its price is significantly lower than that of other competitors – about one and a half billion euros. Its ability to increase its capacity to 20 billion ³ makes it quite appetizing for Azerbaijan's economic interests. TAP has already received the status of a priority European project. It will probably also receive EU approval to be excluded from the so-called “Third Energy Package” to separate the energy operator’s production and distribution assets. In this way, Statoil will legally be able to remain both a co-owner of Shah Deniz and a transit operator through TAP. Ironically, the big loser from the project will be the EU, because TAP does not have the strategic goal of reducing Europe’s, and in particular the Balkans’, dependence on Russian gas. Caspian gas will reach Italy, which already has diversified gas supplies anyway. Italy does not need energy liquidity, as Austria does. The result is that Italy will have the opportunity in the future to resell excess gas quantities to Central and Western European countries at higher prices. Ordinary European consumers will suffer the most from this.
The Southern Corridor is not only torn apart by domestic competition. Azerbaijan’s decision also depends heavily on the development of the Russian project in the geopolitical race in the Black Sea. South Stream offers the most gas – 63 billion cubic meters, all of which will be supplied by existing deposits in Russia. Gazprom is expected to actually redirect a large part of the supplies passing through the Druzhba gas pipeline to South Stream, thus eliminating its transit dependence on Ukraine. This benefits the EU, which is happy to avoid its constant quarrels with its Ukrainian partner. It is no coincidence that Nord Stream, which performs a similar function in the northern direction, was completed so expeditiously last year. Financing for South Stream is also guaranteed by Gazprom, which has a majority stake in the project. Including the active support of the German company Wintershall, the Italian giant ENI and the French EDF, there is no shortage of future consumers of the new gas.
On the transit side, Gazprom has not encountered any problems yet. Turkey has concluded a strategic agreement with Russia to reduce gas supply prices in exchange for South Stream passing along the bottom of the Black Sea in its exclusive economic zone. Bulgaria is ready to launch the project just to appease the Russian nuclear lobby because of Belene. Serbia is linking South Stream to even closer geopolitical cooperation with Russia, while the other countries in the Western Balkans are experiencing a serious energy hunger that only Russia seems ready to satisfy. Hungary and Austria are ready to cooperate with both Nabucco and South Stream in order to have not only more diversified supplies, but also to satisfy the deeply rooted Russian interests in their energy markets.
All this indicates that time is running out for the European Southern Corridor. Ultimately, the big winner of this race for time will be Turkey. On the one hand, it will secure an additional 6 billion cubic meters of gas, reducing its dependence on Russia (currently 65%). On the other hand, if TANAP becomes a reality, the Turkish company BOTAŞ will own 20% of the pipeline, which will allow Turkey not only to transit, but also to resell the new quantities of gas. Erdogan’s government is also hinting that the operation of the new pipe will be carried out under Turkish law, which scares the EU and puts Turkey in the position of dictating the terms of transit fees and supplies for Nabucco-West. The Turkish Energy Minister, Taner Yildaz, even emphasized that the European consortium must fit the plan for the construction of Nabucco-West with the TANAP schedule. European energy leaders seem ready to listen. Perhaps this is the only way the soap opera, Nabucco, will finally end.
I wonder why there is no talk of a pipeline to the Persian Gulf. After all, there are a lot of natural gas deposits concentrated there, Qatar and Iran, for example, I think are in second and third place in terms of conventional deposits. Of course, nowadays there is no question of buying anything from Iran, and a pipeline through the Arabian deserts is unlikely to be very cheap. However, such a pipeline would put the two largest gas production regions in direct competition, which would be very good for prices. In the future, when the situation in the Persian Gulf normalizes, in my opinion this should be a big priority for the EU. In my opinion, Nabucco itself also had the side goal of dispelling Russian influence in the post-Soviet Caspian basin, by attracting Turkmenistan and Azerbaijan to Europe and bringing some non-Russian money into these economies. Not very successful so far, and the reasons are probably still not very clear.
In Russia, by the way, they are still lagging behind with investments in new deposits on the Yamal Peninsula and the large Shtokman in the Barents Sea. If they do not start working on their development, which will be quite expensive, they may fall significantly behind other alternative sources. But perhaps there too they already think that the main buyers in Europe will not be as profitable as they have been so far. In principle, Russia also has interests in diversifying its economy outside the mining industry, as well as in Europe reducing supplies from Russia. In the end, both may turn out to be completely achievable.
Both Iran and Iraq are interested in the Nabucco project, but both countries face geopolitical obstacles. I think it is unnecessary for Iran to explain that if the sanctions against the regime are not lifted, no Western company will be able to start investing in Iran's truly huge natural gas reserves. Western investors, for example, were interested in developing the South Pars field, but they had to abandon the plans after the pressure increased during the Bush administration. Iraqi Kurdistan also has ambitions to supply the southern corridor, but cooperation with the EU is hampered by the problem of Kurdish separatism. In its fight against it, the central government in Baghdad is trying to stop the autonomous Kurdish authorities from concluding independent deals for the exploitation and export of their energy resources. As for Qatar, I can say that they are already actively exporting liquefied gas to both Europe and Asia. In fact, they are becoming one of the world leaders in the export of liquefied gas, undercutting prices on Western energy exchanges. The problem is that Qatari gas is physically impossible to reach the countries of Central and Eastern Europe, which actually have the greatest need for diversification of sources.
I completely agree with Russia. The exclusion of large energy companies from the Russian market is stopping the development of their gigantic projects, which require expert know-how and investment to be completed. Whether Russia will be able to diversify its economy, however, is difficult to say. The so-called Dutch disease is rocking the Russian economy, and the addiction to easy income from energy exports is deeply rooted in power.
Well, Dutch disease certainly has an impact on the economy, but I think the Russian domestic market is big enough to compensate for this. That is, as the economy develops, domestic energy consumption will increase, which will reduce the export of energy sources. In principle, the relatively cheap energy that the Russians are expected to have in the next century, and which Europe and much of the rest of the world may not have, puts them in a good position to develop energy-intensive industries. Which is actually happening now, judging by energy consumption relative to GDP. But this also comes mainly from gasoline subsidies, which I at least do not support.
Let's also say a few words about Prime Minister Borisov's project to transport liquefied gas across the Black Sea. I don't know how much a tanker can carry and whether a 30 billion-euro pipeline like Nabucco can be successfully supplied in the way that was proposed for Burgas-Alexandroupolis, but this option seems reasonable enough to inject liquidity, as you say, into the energy market in the Balkans. Only the EU should provide money for terminals, which is also interesting how much it will cost compared to the option with pipelines. In general, it is good to develop domestic traffic along the Black Sea, because the Bosphorus is already extremely busy and is a bit like Panama, only without plans to expand.
The topic of the Russian economy is too extensive to go into detail here, but an article will be published soon on the subject. As for liquefied gas, Mr. Borisov has in mind condensed gas, which will be transported to the port of Burgas by special tankers. This plan is old and does not envisage more than 8 billion cubic meters of gas per year. The project seems unlikely to me, because Azerbaijan has better alternatives for the new export from Shah Deniz 2, and for more than one project there is simply no gas, at least until the trans-Caspian connection to Turkmenistan becomes a reality, which will not be soon.