NABUCCO GOES WEST

The long-suffering Nabucco gas pipeline project, which was named after the legendary king of Babylon, has rather forfeited its "ambitious" claimsA short while ago a lightweight version of Nabucco was endorsed: of the original length of 3,900 km, 2,700 km remain, and the volume of supplies is also being halved compared with the 31bn cubic metres set out in the first version of the project.

The abridged Nabucco is now being called Nabucco-West and will not run through Georgia and Turkey, but only from the Turkish-Bulgarian border to Austria. This option is considered by the Nabucco construction consortium to be viable in the near future, unlike the erstwhile plan of the "colossus".

The western media are pointing out that all this is the result of a change in US' gas policy. The Russian media are all claiming that the "Southern Stream" gas pipeline now clearly has greater chances of winning the war for the European market.

Version No2, Part One

Western analysts believe that the decision of Azerbaijan and Turkey to build the Trans-Anatolian gas pipeline (TANAP) played a leading part in reducing Nabucco's rating. This pipeline, with an original throughput capacity of 16bn cu m annually, will run from Turkey's eastern to western border.

All this forced the US to review its policy. Whereas originally the United States voiced its support for Nabucco - the best known, biggest and most expensive of the proposed pipeline projects - gradually the American administration altered its position, switching to broader support for the Southern Gas Corridor as a whole as the future route for the transportation of gas from Azerbaijan to the European Union. "Three years ago we were set on Nabucco," the Wall Street Journal said, quoting Richard Morningstar, the US special envoy for Eurasian energy, speaking at a conference in Brussels in March. "But it has become apparent that there isn't enough gas to completely fill the Nabucco pipeline, and therefore our policy now is to support the Southern Corridor," he said.

It will be recalled that before February the competition was between four projects. It is planned to deliver gas via Nabucco and the BP-supported South-East Europe Pipeline (SEEP) to Central Europe, and possibly as far as Austria, whereas the Trans-Adriatic Gas Pipeline (TAP) and ITGI would supply gas only as far as Italy. The exclusion of the ITGI project, which was announced earlier, was the first shift towards a competitive struggle and increased the chances of the TAP, one of the main sponsors of which is the Norwegian Statoil company, which plays a leading role in the Shah Deniz consortium. However, everything will depend on how much gas is supplied to Europe, the Wall Street Journal writes. The TAP is designed to transport from 10 to 20bn cu m of gas annually. Therefore, any significantly lower volume will bring the viability of the project into question: the less gas is transported through the pipe, the higher the cost of a unit of gas. It would not make economic sense to pump only 5bn cu m of fuel annually through the pipeline. "Whether it will be possible to transport more than 10bn cu m of gas annually will become clear in the course of the next 12-18 months," Morningstar said.

Meanwhile, Nabucco's shareholders are not losing hope of receiving Azerbaijani gas. As Reinhard Micek, the consortium's head said, the start of applications from consumers depends on the progress of the talks with the suppliers. "I expect that Shah Deniz will make a decision at the end of the year and if this happens…we will be able to start granting applications at the end of the first quarter of 2012," he presumed.

For his part, the head of the EU's office in Azerbaijan, ambassador Roland Kobia, said that the European Union still supports Nabucco. "The project is still alive, and the consortium for the development of the Azerbaijani Shah Deniz gas-condensate field still sees it as a possible gas supply route," he said.

However, a statement by Alister Cook, BP's vice-president for the development of the Shah Deniz field in an interview for the Financial Times, that the change in the concept of the project was a big step forward added a little assurance in favour of the implementation of Nabucco. "We believe that Nabucco-West has substantially improved its proposal. We are very pleased at this." He said that BP is convinced that it would be more sensible to build a smaller pipe which, however, could be extended when greater volumes of gas are accessible.

"Southern Stream" or Southern Gas Corridor?

Of course, Nabucco's transformation from a global project to a local one pleased Gazprom: One potential competitor has disappeared from "Southern Stream". Russian experts are confident that Gazprom will therefore maintain its dominant position in the countries of southern Europe for the next ten years. Incidentally, it was precisely against the background of the events around Nabucco that the Russian gas monopoly decided to apply a proven tactic and invited the experienced German politician Henning Voscherau, who is well known in "private circles", to head the project company for the construction of the maritime section of the "Southern Stream" project. He was mayor of Hamburg and president of the German Upper House. Moreover, his brother Eggert is head of the German BASF concern which owns a 15-per cent share in "Southern Stream".

According to the German and Russian media, several possible options for the gas pipeline route are now being considered. "Southern Stream" is due to be launched in 2015, and its capacity will be 63bn cu m annually. In this event Russia will be able to supply gas directly to Europe and its dependence on transit via Ukraine will be substantially reduced.

That said, it is common knowledge that great energy projects have considerable political overtones. Therefore, whichever project dominates Europe's gas market is not so much an energy question as a political one. With the Iranian question heating up, Vladimir Putin returning to power in Russia, political speculation on the economic crisis in Europe and the coming US presidential elections - all these and other factors of global political life are capable of having a substantial influence on gas pipeline plans.

For example, if Russia tightens its pressure on Turkmenistan over the question of its refusal to take part in gas supplies by way of the planned Trans-Caspian gas pipeline along the bed of the Caspian and further along the Southern Gas Corridor, the chances of the success of the diversification of Europe's fuel market are substantially reduced. According to the western media, the European Union is currently doing all it can to urge Turkmenistan to adopt a political decision and take part in the building of the Southern Gas Corridor through Azerbaijan and Turkey to Europe. The European Commission is prepared to act as mediator at talks between Azerbaijan and Turkmenistan so that the sides can sign an inter-governmental agreement which will consolidate Turkmenistan's gas quota in the Southern Corridor project. Turkmenistan is not opposed to participating in the project and diversifying supplies, but believes that the European Union should put pressure on Russia and get the "OK" for the construction of the Trans-Caspian gas pipeline from Turkmenistan to Azerbaijan without the demarcation of the Caspian Sea shelf.

All these ideas were voiced during the course of an international conference in Berlin in March on the prospects for energy cooperation between the EU and Turkmenistan. Bayramgeldi Nedirov, Minister of Oil and Gas Industry and Mineral Resources of Turkmenistan, said that by 2030 the volume of gas extraction in the country is planned to be increased to 230bn cu m annually, of which 180bn is to be exported.

It was after this conference that a report was issued saying that Baku and Ashkhabad had reached agreement on the question of the construction of the Trans-Caspian gas pipeline. The respected Deutsche Welle (DW) said, quoting a source in the Turkmenistan government, that "such talks (on the Trans-Caspian gas pipeline) are already underway, and basic agreement between Baku and Ashkhabad has already been reached".

If this is so, there is no doubt that the attractiveness of the Southern Gas Corridor will grow even more, which will strengthen Azerbaijan's function not only as a supplier, but also as a transporter of gas to Europe. In any event, all these things will finally become clear in the next few months. For the moment, the gas pipeline "show" goes on. And there could be one more interesting "performance" from its participants.