Originally published on 2012/02/09
The bad news came just before the closure of the October 1 deadline and might have been the final lethal blow for the European Nabucco Pipeline project. UK oil and gas giant Beyond Petroleum’s (formerly British Petroleum, short BP) proposal of the South-East European Pipeline (SEEP) might easily rival and replace Nabucco as the most suitable option to bring Caspian gas to Europe. Even though some of Europe’s strongest energy companies stand behind Nabucco: Austria’s OMV, Hungary’s MOL, Turkey’s BOTAS and Germany’s RWE; it has always had a bit of a slow start in comparison to its competitors in the Caspian Sea region. Other projects, such as ITGI, TAP or the Russian South Stream have always seemed somehow more suitable, either because they were endorsed by a shareholder of the Shah Deniz field, such as TAP by Statoil, were smaller and thus more adjusted to the gas available in the second development stage of Shah Deniz (ITGI and TAP should each carry 10bcm compared to Nabucco’s 31bcm) or had the financial backing (South Stream will be build by Gazprom and Italy’s Eni). However, most importantly, Nabucco’s single biggest failure was long considered a smart move: it had failed to secure gas before its construction and now struggles to find enough gas to justify its construction.
SEEP has one major advantage over Nabucco – BP is one of the stakeholders of the Shah Deniz field (together with Statoil and a few others) and will thus be in a position to shift the vote in favour of SEEP instead of Nabucco. It can to some extent be considered to be a bastardized version of Nabucco. It looks like Nabucco was fleshed out and adjusted to the realities – its capacity of 10bcm would match the additional gas output of Shah Deniz II post-2017, and unlike Nabucco, and in line with ITGI and TAP, it will rely on BOTAS pipeline network to transfer gas through Turkey. This will greatly reduce costs and should ensure the projects financing.
However, there are a number of problems that need to be addressed. First of all, SEEP can hardly be called a proper project so far, as it is hardly more than a conceptual proposal with little more than cost estimates and an alternative route to transfer Azeri gas. Though it will be cheaper than Nabucco, the reliance on the Turkish pipeline network and parts of Hungary’s and Bulgaria’s network, could prove a potential problem, especially as all networks require modernisation to meet future gas transport requirements. Finally, the capacity of 10bcm will hardly be enough to reduce the regions dependence on Russian gas deliveries, and unless SEEP will be scalable, it will remain one of many pipeline projects necessary to increase the energy security of the region. This could, almost ironically, mean that Nabucco could eventually be build after all.
Should Brussels attempt a counterattack?
As mentioned above, Nabucco has been slow to take off and now SEEP might have dug the grave for the EU project, but Nabucco might still prevail if the EU finally takes a stance and backs the project properly. There is no doubt that Nabucco is too big for the 10bcm of Shah Deniz alone but there are other sources for natural gas – Iraq amongst others – and more importantly Turkmenistan and one day Iran. The country is willing to diversify its energy exports – currently Russia and China are the only destinations for Turkmen gas – and the European market, especially in light of the “greening” of its economies, might be the ideal market. However, the Turkmen government is unwillingly to invest in the Trans-Caspian pipeline unless it can be sure that Europe is going to import a large quantity of natural gas. Other countries, such as Kazakhstan or Uzbekistan might sign up to the proposal once their governments are convinced that Europe is determined to invest in a project that is in line with their Big Gas strategy.
Nabucco was recently estimated to cost somewhere between €14-20bn, a cost that many deem too high and uneconomical. Compared to South Stream it will still be cheaper and will reduce the EU’s dependence on Russian gas. Furthermore, it might bring about closer relations between the EU and natural gas suppliers such as Iraq, Turkmenistan or even Iran. Proponents of Nabucco will claim that Turkmen or Iraqi gas is cleaner than any natural gas extracted from Polish or French shale. Furthermore, if Nabucco fails, the EU will suffer a humiliating defeat vis-á-vis Russia over its energy security, as Nabucco was more than just a project but first and foremost a symbol of European determination to rid itself off Russia’s energy power grip.
In times of economic turmoil it might seem like a mad idea but if the EU is serious about reducing its greenhouse gas emissions, then Nabucco should be build, however, only after the consortium secured access to Turkmen (and possibly Iraqi) gas. The consortium should thus primarily focus on Turkmenistan’s gas reserves as Azerbaijan’s gas reserves might be enough for the beginning but will not be enough to fully fill Nabucco. This solution might require large investments but might be the only answer to Russia’s energy pincer (Nord Stream and its souther ‘sister’ South Stream).
The green energy revolution in the EU might be taking place but it will take many years before renewables will be able to provide enough energy to substantially lower Europe’s hunger for gas. In the struggle for Caspian gas size might thus actually matter if Nabucco can be slightly adjusted to convince the littoral states of the Caspian to contribute to it. One thing is sure though, Europe needs to get a foothold in the Caspian region, otherwise its energy security will remain in the hands of external forces for decades to come.