(Eghtesad and Energy) - Nabucco natural gas pipeline once again became headline of news media following the recent meeting of the Pipeline partners in Budapest, Hungary. When prominent Italian composer and opera singer, Josepe Verdi was busy composing the “Nabucco” opera back in 1841, he could not imagine that the title would be used to furnish a giant natural gas transfer project 160 years later.

 

Selection of this title for the Project has been entirely by accident. However, Verdi’s lyrics about Nabucco address the king of Babylonia, a content which is totally oriental. What a coincidence! Nabucco is the first gigantic natural gas project intended to link the natural gas-rich Caspian Sea, Egypt and the Middle East regions to the thirsty European market. But, is this ambitious project really practical ambition?

 

The pipeline route extends from Eastern Turkey. In fact, Turkey plays a key role in this project due to her strategic geographical situation. The pipeline will then stretch to Baumgarten in Austria via Bulgaria, Romania and Hungary. The route is 3300 kilometers long and is expected to transfer 31 billion cubic meters of natural gas to Europe. Project feasibility studies began in 2002 and it was technically approved and finalized in 2005. As costs of engineering, equipment procurement and construction work have escalated, the overall cost of construction of this project is estimated at US$ 8 billion.

 

Construction of this 3300 km long pipeline (1935 km in Turkey, 400 km in Bulgaria, 495 km in Romania, 519 km in Hungary and 46 km in Austria) is scheduled to begin in 2010. When completed, the pipeline is expected to transfer an annual 31 billion cubic meters (3 billion cubic feet) of natural gas. In the first phase, a 2000 long pipeline shall link the city of Ankara in Turkey to the Austrian city of Baumgarten. The border installations already in place in Turkey, Georgia or Iran are scheduled to be utilized temporarily for two years in which case, the project shall practically go into effect in 2012 with an initial annual transfer capacity of 8 billion cubic meters of natural gas. In parallel, construction of the remaining portions of the pipeline will continue.

 

Construction of phase 2 will commence in 2012 and it is expected to be commissioned in late 2013. The total annual transfer capacity of this pipeline has been foreseen at 30 billion cubic meters by 2017, which would require setting up of additional numbers of pumping stations.

 

The pipeline project is expected to facilitate:

 

-Development of a new corridor for importing natural gas into Europe.

-The en route states to benefit from the pipeline.

-Contribution of natural gas suppliers to the security of energy supplies.

-Boosting of Europe-wide pipeline network.

 

Germany’s RWE, Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgarian Energy Holding and Turkey’s Botas companies each have an equal share of 16.6% in this joint project. When Russian Gazprom Company discontinued natural gas supplies to Ukraine in January 2006, Europe became exposed to shortage of gas supplies and that is why the EU strongly supports the Nabucco pipeline project.

 

Construction of the project has so far experienced delay due to absence of a strong and reliable contract that would guarantee consistent injection

of gas into this pipeline. In July 2007, Turkey’s Botas Company, reported of signing a contract with Iran that would allow for the transit of up to 30 billion cubic meters of natural gas per year via Nabucco pipeline.

 

Pursuant to the gas crisis which reemerged between Russia and Ukraine in winter of 2008, European states became more resolute to implement the Nabucco project. Senior officials of Turkey, Bulgaria, Romania, Austria, Hungary and Germany attended a meeting in Budapest recently. These six states are members of the consortium for the construction of Nabucco pipeline as well. High ranking officials of Azerbaijan Republic, Turkmenistan, Egypt, Kazakhstan and Georgia were also present in the recent meeting.

 

Although the participants expressed satisfaction with the results of this meeting, Turkmenistan refused to verify the closing statement of the meeting. Germany had not been represented in this meeting at a ministerial level. Germans are dissatisfied and concerned about the likelihood of Nabucco pipeline to become a political subject and for that mater dispatched their deputy minister of economy to Budapest meeting.

 

Turkish premier, Recep Tayyip Erdogan has made Ankara’s approval for this pipeline conditional on Europe’s support for Turkey’s joining the EU. President of the Republic of Azerbaijan, Ilham Aliev stated in the meeting: “we extend support for the construction of Nabucco pipeline. Of course, Europe should manage to make Turkey change her mind concerning earmarking 15% of Nabucco pipeline gas for Turkey’s local consumption.”

 

Prime minister of Czech Republic, Mirek Topolanek who is also the rotational president of EU, has stressed that Russia’s South Stream and North Stream pipelines are the most serious threats to Nabucco pipeline and that European states should conclude an alliance for the construction of this pipeline as soon as possible and cut their dependence on Russia’s energy supplies.

 

This is under circumstances that Hungary, Bulgaria, Greece, Italy, Austria and Slovakia are planning to join South Stream pipeline. Meantime, Germany, the Netherlands and Britain have expressed their preparedness to have a share of the is going to be considered as a source of natural gas supplies to Europe via this pipeline in case it is implemented.

 

The route through Turkey has the highest reasonable chance of success for Iran’s secure gas supplies to Europe. Iran’s 9th gas transfer pipeline project known as IGAT9 may facilitate gas supplies to Europe, however, natural gas exports to Europe will be practical in case:

 

 1-Long term supplies of gas would become available taking into consideration the construction of North Stream pipeline. Russia has raised the issue of construction of the above-mentioned two pipelines in order to rival Nabucco pipeline and prevent its construction and maintain its customers in Europe. Presently, there resides no alliance among European states regarding construction of Nabucco. Another question of prime significance is financing of this project. The Budapest meeting failed to come to a clear conclusion concerning financing of this pipeline. However, another important question is whether or not Iran is going to be considered as a source of natural gas supplies to Europe via this pipeline in case it is implemented.

 

 2-Iran prepares to take such and other similar risks and adhere to market price in the long run.

 

3-Russians avoid using pricing mechanism as a tool to discourage new rivals to have access to markets in Europe. Interaction with Russia is as important as interaction with Turkey.

 

4-New discoveries in Iraq’s Kurdistan are taken into due consideration. These newly discovered gas reserves are believed to be an alternative to Iran’s natural gas. It is obvious that a collective consensus is required to be reached inside Iran for the implementation of gigantic natural gas projects. Meantime, there should also shape a reasonable, executive and realistic strategy with regard to Iran ’s real supply capacities to be followed by international interaction in this area.

 

Source: Eghtesad and Energy

June 15, 2009