The Nabucco Pipeline Project: Russia And The Politics Of Natural Gas


By Gustavo Coronel l July 8, 2009

The proposed $11.1 billion Nabucco pipeline, running through Turkey, would bring some 31 billion cubic meters of natural gas per year to Europe from yet undetermined Central Asian gas suppliers, if and when it comes online in 2014.

 

Upon signing the definitive agreement to proceed with construction, July 13, in Ankara, Turkey, the countries participating in the pipeline consortium project: Austria, Hungary, Bulgaria, Romania and Turkey will be forced to address both its technical requirements and its political complexity. Specifically, they will have to take a hard look at the supply source for the natural gas which will be required to feed the pipeline. They will have to decide on a mechanism of allocation for the gas to each country and agree with Turkey’s demand that up to 15 percent of the total gas transported via the pipeline be retained for domestic consumption.

One obvious source for the gas is Iran, the nation with the second largest natural gas reserves in the world, after Russia. The United States, an important promoter of the project, would not want to give Iran this prominent role in an energy project of such strategic significance. However, in offering support to the project, Secretary of State Hillary Clinton has been cautious saying that “completing such an expensive, complicated, multinational project will require painstaking alignment between commercial and governmental actors. An essential element of such a project will be the commercial fundamentals.” With these words Secretary Clinton seemed to be leaving the door partially open to the eventual use of Iranian gas to feed the projected pipeline. Iranian participation is risky since it could either have a positive effect on the generally bellicose geopolitical posture of Tehran or increase European energy dependence on an unfriendly supplier. In any case, the final decision on the possible use of Iranian gas will rest in the hands of countries directly involved in the project.

Another prominent source of gas for the Nabucco project is Azerbaijan’s Shah Deniz gas field situated offshore in the Caspian Sea southwest of Baku. The South Caucasus pipeline, the primary transporter of Shah Deniz gas to Turkey through Georgia also provided an independent lifeline for Georgia from high priced Russian natural gas supplies. In an apparent effort to disrupt the Nabucco project, Russia has become the preferred buyer for the gas that will be produced in the second stage expansion of this field, gas that would be essential for the supply to the Nabucco pipeline. The pipeline consortium has also tried to sign a gas supply agreement with the Kurdish provinces of northern Iraq, only to see it blocked by the Iraqi government, on the grounds that the Kurds could not conclude an agreement independent of Baghdad. Since it was first agreed upon, in 2002, the Nabucco project has been delayed by political considerations, mostly related to the efforts by Russia to offer alternative solutions in order to keep control of the supplies of gas to Europe, currently running through a major pipeline in Ukraine and caught up in the perennial price war between Moscow and Kiev. One such alternative, the so-called South Stream, would run from Russia to Central Europe under the Black Sea but it would be much more expensive and, even if completed, it would not eliminate the need for Nabucco.

The desire of Europe for increasing independence from Russian natural gas supplies has converted the Nabucco project into an intense geopolitical battleground, one in which Russia is conducting major efforts to prevent the project from becoming a truly independent European alternative to higher priced Russian gas. In this battle there seems to be two weak links: one, the accessibility to sufficient non-Russian controlled gas by the members of the Nabucco consortium; and, two, the economic dependence of Turkey on Russia. Specifically, the relationship of Turkey and Russia seems to be lopsided in Russia’s favor. Turkey has a significant, $18 billion, trade deficit with Russia; some three million Russians spend holidays in Turkey every year, a significant source of income for Turkey that could be put at risk. All in all Ankara will be forced to walk a political and economic tightrope in its role as the primary country of transit for the Nabucco gas pipeline.

In spite of this obvious fragility, Turkish Foreign Minister Ahmet Davutoglu said in early July in Bucharest, after meeting with high Bulgarian officials, that the Nabucco project was “first priority for us… of strategic significance.”

As the inevitability of the agreement on Nabucco seemed assured, die-hard Russian Deputy Prime Minister Igor Ivanovich Sechin asked visiting Turkish Energy Minister Taner Yildiz for the participation of that country in the Russian sponsored South Stream pipeline project. Sechin said, “I offer cooperation to Turkey. We want to establish long-term relations with Turkey….we hope that we can show that this project is a better alternative than other projects.” The Turkish minister, diplomatically, said they would be interested in analyzing this option.



Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to

SFPPR News & Analysis.