NABUCCO ON ITS OWN

The much-touted Western-backed Nabucco project seems to be no more - yet another bloated energy bubble is about to burst. Despite desperate efforts by project implementers to receive strong support from the US, it is still impossible to gather the necessary investments, and most importantly, the necessary quantity of raw materials to fill the pipeline.

In any case, Azerbaijan has always treated this project with some scepticism, although officials have never flatly denied that they might participate in it. But apparently, we are also tired of the "big project" game without any specifics. In any case, recent statements by President Ilham Aliyev have sounded more than clearly.

Not much of a loss?

If the launch of the Nabucco project is delayed, Azerbaijan will increase gas supplies to Russia and other neighbouring countries, Azerbaijani President Ilham Aliyev told The Wall Street Journal in an interview during the World Economic Forum (WEF) in Davos. "It is clear that if the construction of Nabucco is delayed, we will be selling more gas to Gazprom," the Azerbaijani leader said. He added that Gazprom has expressed its readiness to buy as much Azerbaijani gas as the republic is able to deliver. A week earlier, this was stated by the head of Russia's gas monopoly Aleksey Miller. "The particularity of the contract with Azerbaijan is that we have no upper limit on the purchase of gas. This is the only contract of Gazprom where such conditions are recorded. We are ready to take as much gas as our Azerbaijani colleagues are ready to supply," he explained.

The Azerbaijani president stressed that there are still "a lot of questions" about the implementation of Nabucco and "there have been no answers to them for a long time". "We still do not know the leader who will move the process forward. Who will engage in negotiations with gas suppliers and transit countries? Who will be engaged in the marketing of this gas? What will the price be?" Ilham Aliyev told Bloomberg in an interview. The Nabucco project, supported by the European Union and intended to supply Caspian gas to ensure diversified supplies in addition to Russian gas, has become "too politicized", he said. At the same time, the Azerbaijani president said, a number of countries have joined its potential rival - the Russian-backed South Stream project, creating "uncertainty".

"Azerbaijan must know how all this is serious about Nabucco. We need an investment of about $20 billion to expand the largest gas field Sah Daniz to help fill Nabucco," said Aliyev.

In addition, the export of Azerbaijani gas to Europe is constrained by the failure to resolve transit issues with Turkey. "The price proposed by Turkey is unsatisfactory, so in these circumstances we cannot move forward," said the president.

Such harsh statements by the Azerbaijani president are fully justified - he had previously said that the unresolved problems with ways to export Azerbaijani gas are harmful to our country. This displeases the partner companies in the Sah Daniz project, delays Phase 2 of gas production from this field, and as a consequence, inhibits major investments in the republic. After all, anyone can run out of patience, and Azerbaijan has the right to demand a more serious approach to the issue both from Turkey and Nabucco. Otherwise, Baku reserves the right to sell its gas at favourable prices to real clients. In particular, we can expand the volume of gas supplies in all directions in which we transport it, that is, Russia, Georgia, Turkey and Iran, Aliyev said.

Meanwhile, according to some analysts, Turkey is deliberately stalling the settlement of tariff issues with Azerbaijan not to allow Nabucco to take off. The reason for the change in the attitude to this project is an attractive offer by Russia, Nabucco's fierce rival. It must be noted that during his visit to Moscow in January this year, Prime Minister Recep Tayyip Erdogan assured the Russian leadership that Ankara would not prevent the construction of the South Stream gas pipeline which passes through Turkish territory. In turn, Russia will help implement (by providing raw materials) a project of importance to Turkey - the construction of the Samsun-Ceyhan oil pipeline. It is planned that it will go through Turkish territory between the Black Sea coast near Samsun and the Mediterranean coat in Ceyhan. The purpose of the project is to secure a route for the transportation of crude oil from Russia and Kazakhstan, bypassing the Bosporus and the Dardanelles.

No money, no gas....

However, will the US, which strongly supports projects that bypass Russia, put up with such developments? Hardly. We must say that the US special envoy on energy issues in Eurasia, Richard Morningstar, has called the lack of agreement between Azerbaijan and Turkey on gas supplies from Sah Daniz disappointing. "Both are friends of the United States, and in these negotiations, we do not support either side. But further serious delays can lead to the closure of the window of opportunities for the South Corridor," he said. According to Morningstar, the US supports the idea of building a new corridor for the delivery of gas from the Caspian region to Europe.

The South Energy Corridor can connect the Nabucco pipeline and the gas pipeline between Turkey, Italy and Greece. Both are important from a strategic point of view for the diversification of gas resources and opening of new energy routes to Europe. The South Energy Corridor will yield a commercial profit to the Caucasus and Central Asia and create long-term partnership with Europe based on mutual interests," he said. According to him, Washington's attention is focused on two directions: an agreement between Azerbaijan and Turkey on the Sah Daniz gas project and the provision of the project with gas from Central Asia and the Middle East. "But the concept of the South Corridor will be unsustainable if the countries which receive a major advantage from its implementation do not reach a commercially viable and mutually beneficial agreement on the terms for gas transportation," Richard Morningstar said.

At the same time, the project implementers themselves are also extremely pessimistic about the possibilities of its implementation. The head of the gas division of the oil and gas group OMV, the operator of the Nabucco project, Werner Auli, said recently that contracts for the transportation of gas through Nabucco will be put on sale in the summer of 2010 and applications will be accepted from July to October. OMV expects good demand for the planned gas pipeline, Auli said, since a survey of potential clients in 2008 showed that demand may exceed by 2-3 times the design capacity of the pipeline, which is 31 billion cubic metres per year. But! "If we see that there is no sufficient demand for gas, the project will be called into question. We are a commercial company, not a government agency. If there is no demand, we are not going to build the gas pipeline," said Auli.

Nevertheless, it is still not known whether these investments will be made in the project at all? Reinhard Mitschek, the executive director of Nabucco Gas Pipeline GmbH, reported recently that the European gas pipeline project continues to face serious financial problems and difficulties in obtaining loans. "The total amount required for the construction of the route with a length of more than 3,000 kilometres is estimated at 11.8 billion dollars. The consortium plans to apply to international financial organizations and agencies for loans soon," said Mitschek. It must be remembered that in March last year, Nabucco was excluded from the priority projects of the European Union. In addition, it was transferred to the "South Gas Corridor" category which includes several energy projects for Southern Europe.

In other words, there are almost no chances that the big gas pipeline idea will materialize. But the game on the market is not over yet, which means that it is too early to judge who will eventually lose and who will win the crown of the winner.