NABUCCO APPROACHING IMPLEMENTATION

Events surrounding the Nabucco project are about to take an exciting turn. The signing, in Ankara, of an agreement by the leaders of Turkey, Austria and Hungary and the energy ministers of Bulgaria and Romania, was the logical result of developments in energy security in the aftermath of the Russian-Georgian war in August and, even more so, the Russian-Ukrainian gas 'war' which erupted early this year.

The Nabucco project, valued at Euros 7.9 billion, is designed to transport gas supplies from the Central Asian and Caspian regions to EU countries. The 3,300-km gas pipeline is expected to run through Turkey, Bulgaria, Romania and Hungary before delivering gas to storage in Austria. Participants in the project include the Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE companies. They all own a 16.67 per cent share in the project. Construction is scheduled to commence in 2011, while first gas is to be delivered in 2014. Europe will then receive up to 31 billion cubic metres of gas every year.

Despite the signing of the Ankara agreement, the prospects for Nabucco are not entirely clear; this has to do with the problem of filling the pipeline and competition from other projects (as is known, the Nabucco resource base is claimed by Russia, as well as by the future Trans-Adriatic and Turkey-Greece-Italy pipelines). Neverthe-less, the agreement reached in the Turkish capital has convinced most sceptics that Nabucco does stand a good chance of being implemented.

An important factor in the promotion of the project was a change in Turkey's position; it insisted initially on a claim to 15 per cent of the gas, at low prices, for further re-export. Turkish Energy Minister Taner Yildiz said "Turkey will have access to the gas to be transported via Nabucco, which is why it is abandoning its demand for 15 per cent of the gas at a low price". It is clear that Ankara expects the implementation of Nabucco to invigorate Turkey's position in talks with the EU over the former's accession to the latter organization as a fully-fledged member. And although Ankara has yet to announce its decision on the price, there are reasons to believe that it will not lay down strict transit requirements.

Meanwhile, the Turkish factor is also manifest in a slightly different issue - the filling of the pipeline. It is no secret that one of the reasons for Ankara's reluctance to implement the project was the prospect of Iraq joining it. Iraq's gas resources are concentrated in the country's north, i.e. within the Kurdish autonomy. The Austrian OMV and Hungarian MOL recently acquired a total of 20 per cent of the shares in Iraq's Pearl Petroleum, in order to increase gas production in Iraqi Kurdistan; this was declared to be part of the strategy to provide Nabucco with raw material. At the same time, Iraqi Prime Minister Nuri al-Maliki said his country plans to supply about 15 billion cubic metres of gas a year for the project. However, Iraq's participation in the project would be possible only if a pipeline were built to link it to Turkey. Thus it would be reasonable to expect Ankara to take advantage of an opportunity to reinforce its own position as a transit country, not only to boost its stance in EU integration talks but also, more importantly, to secure the West's support for military operations by the Turkish army against the Kurdistan Labor Party (PKK) terrorist organization.

The latest developments around Nabucco are certainly preconditioned by the tension in relations between Russia and the West, which is reluctant to remain dependent on Russia for gas and is using every opportunity to lobby for the delivery of the "blue fuel" to Europe bypassing Russia. EU plans are also facilitated by the growing differences between Moscow and Ukraine - an important transit country for Russian hydrocarbon deliveries to Europe - on the one hand, and between Russia and Turkmenistan - which possesses tremendous reserves of gas in Central Asia and is set to participate in Nabucco - on the other.

However, the implementation of Nabucco threatens to deal a blow to the energy projects led by Russia. The biggest competition to Nabucco is from the Southern Stream gas pipeline project, which is to be built through the Black Sea from Novorossiysk to the Bulgarian port of Varna. Branch lines will then pass through the Balkan Peninsula to Italy and Austria. The incoming Bulgarian prime minister, Boyko Borisov (leader of the GERB party which won the 5 July parliamentary election), has already stated the need to suspend talks about joint energy projects with Russia, including the construction of the Bulgarian section of "Southern Stream".

At the same time, the West is not ruling out Russian participation in Nabucco as a supplier of "blue fuel". This was clearly stated by the US special representative on energy issues in Eurasia, Richard Morningstar, and assistant to the Secretary of State, Matthew Bryza. However, Russia still views Nabucco as a barrier to its monopolistic control over gas transportation to Europe, rather than as a project for mutually beneficial energy cooperation. Thus it is ruling out participation in the project, as this would compel Moscow to abandon completely its strategy of expansion in European gas markets.

Further, there is the equivocal presence of Iran in the Nabucco affair. The participation of Iran could remove all doubts about filling the future gas pipeline, which is why EU states and Turkey support Iran's joining the project. This prospect, however, is categorically dismissed by Washington, which demands that Iran reverse its nuclear programme. "Let Iran first become a normal state and stop developing a nuclear weapon. Only then will it be possible to talk of its participation in Nabucco," Bryza said. 

Meanwhile, Tehran, via the words of Azizalla Ramezani, chairman of its national gas company, has confirmed its readiness to take part in Nabucco. He said that by 2014, when construction of the pipeline is scheduled for completion, Iran will be capable of supplying European markets with up to 10 billion cubic metres of gas a year. Iran is clearly hoping that the Europeans, concerned for their own energy security, will convince their overseas ally to use Iran's resources.

The situation with Turk-menistan is much clearer, after the West has spent several years persuading it to join the gas pipeline construction project bypassing Russia. Ashgabat is now confidently stating its readiness to send gas to Europe via Nabucco. Turkmen President Gurbanguly Ber-dymukhammedov openly stated that his country intends to grasp the opportunities available to participate in major international projects such as Nabucco. It appears that Ashgabat's decision was largely influenced by recent wrangling over gas with Russia. Under a 2003 agreement, Russian Gazprom has the sole right to buy up to 50 billion cubic metres of Turkmen gas every year for 25 years. However, in April 2009, there was an explosion on the Dovletabad-Deralyk gas pipeline and Ashgabat cited Russia's unilateral and flagrant breach of norms and gas purchase regulations as the sole reason for the accident. The Russian side, without prior notification to Turkmenistan, significantly reduced the volume of Turkmen gas extraction, while measures to prepare gas wells and the gas transit infrastructure for such a change require at least a week's notice. As a result of the accident, as well as a slight drop in the demand for gas, Gazprom effectively stopped buying gas from Turkmenistan. This step encouraged Ashgabat to decide in favour of Nabucco.

Against a backdrop of deep division over Nabucco, Azerbai-jan's position is notably calm. In fact, Baku is acting as a driver of the new gas project (even though Azerbaijan is refusing to participate in financing Nabucco, the implementation of which is principally in the interests of the EU). The British Financial Times reports that the only country with the guaranteed capacity to supply gas for Nabucco upon commissioning is Azerbaijan.

Azerbaijan is indeed ready to provide its own gas resources for Nabucco; they would be sufficient to reach the initial throughput capacity of the pipeline (8 billion cubic metres a year). Baku is supporting the project on the grounds that it will strengthen its position in world markets and enhance the country's opportunities to diversify its energy supplies. Further evidence of its multilateral policies in the gas sector was the recent signing of an agreement with Gazprom. However, in taking that step, Azerbaijan did not in any way close the door on participation in Nabucco, the advantages of which (as is the case with cooperation with Russia) are assessed purely from a commercial perspective, thus ruling out any political conflict.

In this context, it is indicative that Bulgaria, Greece and Italy have signed a memorandum on the construction of a gas pipeline for the supply of Azerbaijani gas; BEH (Bulgarian Energy Holding), DEPA (Greek Public Gas Corporation) and the Italian Edison International Holding BV are planning the construction of a gas pipeline from Greece to Bulgaria which will be linked to the TGI (Turkey-Greece-Italy) pipeline. The gas pipeline will transport 1 billion cubic metres of Azerbaijani gas a year as part of Phase 1 of the Shah Deniz project. The construction of the gas pipeline is to be completed in 2012. 

"The commissioning of an additional branch of the pipeline will open up the possibility of transporting gas to the Balkan countries and further to Europe. After the signing of the transit agreement with Turkey and Azerbaijan, Azerbaijani gas will begin flowing along the pipe, which will make Azerbaijan an important exporter of gas to Italy," the Italian La Stampa writes.

The specificity of Azerbaijan's strategy is quite well received by international political centres. The head of the European Commission representative office in Russia, Marc Franko, told the Kommersant magazine that, "I see no problem in Baku cooperating with both Russia and Nabucco". An interesting opinion has also been expressed by Alexandros Petersen, an expert at the Eurasia energy centre of the US Atlantic Council. He believes that by signing an agreement with Gazprom, Baku has made a crucial contribution to the "pricing" arrangements between Turkey and a number of EU countries and also sent a serious message to Brussels and Washington that it was time for decision-making over Nabucco.