With the entry of Iraq into the mix of potential suppliers of natural gas for the Nabucco pipeline to Europe and the proliferation of alternative supply lines beyond the Russian-sponsored rival South Stream pipeline, the "classical" variant of the Nabucco pipeline is undergoing significant modification, just as it moves closer to final realization.
The first catalyst of this development was the signing by the European Union and Turkey last July in Ankara of the Nabucco Intergovernmental Agreement (NIA), which in its own words "ensures the regulatory coherence of this project and makes it compatible with the legal requirements that apply within the European Union's internal gas market" as well as with "international law, European law and the law of Turkey".
This technical legal verification is necessary in view of the fact that gas transiting Turkey is subject to a domestic Turkish legal regime while the same gas transiting EU member states is subject not only to their national legal codes but also to EU community law.
The second catalyst was a multilateral meeting this month in Batumi, one of Georgia's port cities on the Black Sea and already home to important energy infrastructure. The meeting discussed a number of projects, but in the natural gas sector its attention was focused on the White Stream project. This proposes to bypass both Russia and Turkey by taking natural gas from the Caspian Sea basin across Azerbaijan and Georgia, then under the Black Sea, for delivery to the Balkan member-states of the EU, notably Romania, and further shipment westwards. (See Turkey risks gas bypass, 20 March 2009, and Azerbaijan and Turkey clash over energy, 23 October2009).
Originally announced as an "International Energy Summit", the meeting was downgraded to "conference" level after Ukrainian president Viktor Yushchenko decided not to attend in order pursue his ill-fated electoral campaign - in the event, he secured an embarrassingly low 5.5% of the first-round vote. The presidents of Azerbaijan and Poland then sent their regrets for protocol reasons. The conference nevertheless proceeded as a preparatory event for the still to be rescheduled high-level summit, and all interested participants did send representatives: Azerbaijan, Bulgaria, the EU, Hungary, Kazakhstan, Poland, Romania, Turkey, Turkmenistan, Ukraine and the US.
It discussed two main projects: the international White Stream natural gas pipeline (now integrated into the EU's Southern Corridor energy strategy) and the reversal of the Odessa-Brody (now also called Sarmatia) oil pipeline inside Ukraine to its originally intended east-to-west direction using crude from Azerbaijan. I will address the latter issue in a separate article, in the context of its priority within the Euro-Asian Oil Transportation Corridor (EAOTC) strategy subscribed to at the end of May 2008 in Kiev by the presidents of Azerbaijan, Georgia, Lithuania, Poland and Ukraine.
According to a Georgian government statement, bilateral meetings were held between Georgia on the one hand and, respectively, representatives of Azerbaijan, Bulgaria and Romania. This statement suggested that the main points of discussion were the transportation of liquefied natural gas (LNG) and compressed natural gas (CNG). These meetings, therefore, were clearly directed first of all towards the discussion and implementation of plans for the bilateral Azerbaijan-Bulgaria agreement reached in November for 8 billion cubic meters per year (bcm/y).
The CNG is therefore a more immediate prospect, and projects for construction of CNG terminals were presented at Batumi while the more expensive LNG option was the subject of only more general discussions. None of this prevented the more complex and potentially more significant White Stream project from being officially declared the conference's first-ranked priority project.
White Stream, which would transport natural gas from the Caspian Sea basin to Romania (in one variant with intermediary landfall in Ukraine for this country's supply) via the Georgian port of Supsa on the Black Sea and then through an undersea pipeline, is projected to open with an initial capacity of 8 bcm/y, which would rise to 24-32 bcm/y when connected to Central Asia natural gas supplies.
None of these projects is really a competitor to Nabucco, and they all are integrated within the EU's Southern Corridor energy strategy. Europe's demand for natural gas in the 21st century will be great enough to provide consumers for all suppliers of all these pipelines. It is right now a question of establishing the multilateral frameworks (such as the NIA) that are necessary to give the economic, industrial and financial players the political guarantees of stability and security without which they will not proceed.
Indeed, Iraq looks now to be playing a key role in Nabucco. Last week, European Union Energy Commissioner Andris Piebalgs and Iraqi Oil Minister Hussein Shahristani signed a memorandum on a strategic energy partnership. Estimates by EU experts suggest that Iraq could see between 5 and 10 bcm/y into the Nabucco pipeline. (The contract between Turkey and Iraqi Kurdistan is already for 8 bcm/y.) This would give Iraq a key role in the provisioning of the Nabucco pipeline.
The problem between Turkey and Azerbaijan is the appearance that Turkey seeks to claim a privileged position by virtue of its geographical situation. For Turkey, this special situation would result in higher transit revenues, contravening the principle that all parties should pay the same fixed price for each kilometer of pipeline through which their gas flows. The complication seems to be that the NIA necessarily concedes to Turkey the authority to define its own domestic legal regime for regulating such prices.
At least for Nabucco, Turkey should receive gas as committed by its suppliers, setting the transit price only as a function of the transit costs, that is, the distance the gas travels from the border to its consumption within Turkey. Turkey, however, is playing a game to convince, or to try to convince, Azerbaijan that its participation is not absolutely necessary for Nabucco's feasibility. That is why Turkish Energy Minister Taner Yildiz was in Turkmenistan last month for the opening of the new short pipeline expanding the volumes of natural gas that Turkmenistan will sell to Iran. He wants Azerbaijan to know that a pipeline under the Caspian Sea is not the only route by which Turkmenistan's natural gas can reach Turkey for transshipment on to Europe.
The implication is that gas from Turkmenistan could reach Turkey by transiting Iran overland. And so in recent years Turkey has sought to bring Iran into Nabucco, if not as a direct producer of natural gas (Turkey already consumes up to 8 bcm/y from Iran through a bilateral pipeline), then as a transit country for gas from Turkmenistan through Iran directly to Turkey circumventing Azerbaijan, which has had problems over negotiations with Turkmenistan for import of natural gas for onward transshipment into the Nabucco pipeline.
A pipeline along this route exists, but it is in such a state of disrepair that it would have to be entirely reconstructed and expanded for the purpose. The technical and financial aspects of such a project, not to mention the political ones, render such a project highly unlikely.
There has been a fair amount of disinformation lately concerning Turkmenistan's gas reserves and export capabilities. On the one hand, Russian observers assert that the shutdown of the Turkmenistan physical plant from April through December 2009 involved 150 facilities, the totality of which will not be back up and running for several years, thus diminishing the export capacity of Turkmenistan. Likewise, the new pipeline to China from Turkmenistan has been invoked in favor of the arguments that all of Turkmenistan's production is spoken for and that there is nothing left for Europe.
These arguments are intended to misdirect and mislead the unsophisticated observer. In fact, it has always been the case that any gas from Turkmenistan and exported to Europe via Azerbaijan and the Nabucco pipeline would come in the first instance from the offshore Caspian sector of Turkmenistan and/or the adjacent onshore regions. The gas contracted for China, the gas contracted to Iran, and the gas contracted to Russia all come from other parts of Turkmenistan, and they have never been seriously considered as fodder for Nabucco.
In the very long run, it may turn out that Iraq supplies still greater quantities of gas to Nabucco than already agreed, even obviating Turkmenistan. Contractual arrangements with Iraq have certainly accelerated past the negotiation stage, which they have not yet even reached with respect to Turkmenistan. In that case, Turkmenistan could later come on line to supply a White Stream project, in subsequent years, that expands beyond its currently projected 24-32 bcm/y to double or triple that capacity. Demand for natural gas in Europe as the 21st century progresses would certainly justify such an expansion of volume.
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First published in Asia Times Online, 26 January 2010.