Geopolitics of Gas in Europe

By Gustavo Coronel | November 16, 2011

Route of Nord Stream natural gas pipeline/Image: Wikileaks via YLE Finland

The Nabucco natural gas pipeline project that would transport gas from the Caspian region and the Middle East to Europe, starting in Turkey and ending in Austria, began to be developed in 2004. The partners in the project are OMV, Austria; MOL, Hungary; Transgaz, Romania; Bulgarian Energy Holding, Bulgaria; BOTAS, Turkey and RWE, Germany, each of the six countries holding a 16.67 percent share. In May 2011, the official website for the ‘Consortium’ reported a revision in the project’s timetable. It is now estimated that construction will start in 2013 and operations initiated in 2017, provided firm contracts are signed with gas suppliers and demand requirements justify the investment. Although the project still seems to face some uncertainty, the consortium has continued its systematic development.

The Nord Stream gas pipeline project is well advanced

Meanwhile the Nord Stream Consortium has just reported that ‘Line 1’ of its Baltic Sea pipeline “became operational on November 8.”

Routes of Nabucco and South Stream/Wikimedia

This project is based on a 2008 agreement between Gazprom and the Italian energy company ENI, to build a natural gas pipeline that would transport gas from Russia through the seabed of the Black Sea to Bulgaria. From there, the gas would continue in two directions: to Austria, crossing Serbia and Hungary, and to Italy, crossing Greece and the seabed of the Adriatic Sea. This pipeline is expected to cost USD 25bn and to be completed by 2015. This cost appears to be much higher than the estimated cost of the Nabucco pipeline but already has assured gas sources, whereas the Nabucco project still faces supply uncertainties. The two likely sources of supply for Nabucco are Iraq, where pronounced political instability still exists, and Azerbaijan and other Central Asia gas producers that have already expressed interest in supplying the gas.

The competition between these two pipelines is a clear indication of the geopolitical tug of war between Russia and Europe in all matters concerning natural gas supply and demand. Russia is intent on reaffirming its condition as dominant supplier, while Europe makes continued efforts to become less dependent on Russian gas. To further its objectives, Russia has taken a 50 percent share in the natural gas transmission center of Baumgarten, Germany, slated to become the final destination point for the Nabucco pipeline. In addition, by buying gas from Central Asian countries, Russia is attempting to limit the availability of supply for the Nabucco project. If Azerbaijan decided to abandon the Nabucco project in favor of the South Stream project, this would probably spell doom for Nabucco. Clearly, Russia’s strategic chess moves are intended to corner the European natural gas and pipeline markets to both Eastern and Western Europe.

The competition for Central Asian natural gas between the Nabucco project and Gazprom

In trying to obtain natural gas from Central Asia, the Nabucco project received a boost thanks to a conflict between Russia and Turkmenistan caused by an explosion in a pipeline transporting gas from Turkmenistan to Russia. Turkmenistan accused Russia of being behind this incident and, in retaliation, offered gas to the Nabucco project.

However, Russia went ahead with their South Stream gas pipeline project to Europe, built on the strength of a guaranteed supply of Russian gas. The pipeline would bypass politically sensitive areas such as Ukraine.

To enhance the probabilities of the project, Russia has undertaken an aggressive policy of attracting gas supplies from Central Asia, offering Azerbaijan to buy significant volumes of its gas at apparently higher than commercial prices, a clear political maneuver (see report at: In fact, in October 2010, Azerbaijan signed an agreement to sell the Russian company Gazprom 500 million cubic meters of gas per year.

Theoretically, the two projects are not mutually exclusive; but there is doubt that both can be economically justified.

The final decision between the two pipeline projects, Nabucco or South Stream, will have a significant geopolitical component and will be the result of a delicate and complex negotiation involving the interests of the Central Asian countries, Turkey, Russia and Europe. Even China and the U.S. will have a role to play in the final decision.

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.