TURKEY USES GAS PIPE AS LEVERAGE IN EU TALKS
By Celestine Bohlen

International Herald Tribune
April 22 2008
France

PARIS: Turkey is playing hardball in the geopolitical struggle over
an $8 billion pipeline at the center of Europe’s efforts to cut
dependence on Russian natural gas.

Turkey is trying to profit from its strategic location bridging
Europe and Central Asia and to become a key part of Europe’s energy
plan. This might bolster its push to join the European Union – if
its negotiating tactics don’t exhaust Europe’s patience.

Europe wants Turkey to be a transit corridor along the Nabucco
pipeline’s route, which is to run 3,300 kilometers, or nearly 2,100
miles, from the Caspian Sea region to Austria. Turkey wants more
control: acting as a regional energy hub, collecting gas from the
east, buying some domestically at below-market prices and passing on
the rest to Europe for a variable fee.

"Nabucco is a demonstration project of Turkey’s intent to join the
European Union," said Brendan Devlin, assistant to Jozias van Aartsen,
the EU’s Nabucco negotiator. "By delivering on this project, Turkey
would clearly underline its importance to the EU."

Named after a Verdi opera about the Babylonian king Nebuchadnezzar,
Nabucco comprises energy companies from Turkey and five EU member
states: Austria, Bulgaria, Romania, Hungary and Germany. From its
inception in 2002, the project, based in Vienna, has been the focus
of a political scrum over European energy security.

Gazprom, the government-controlled Russian energy company,
has a monopoly on gas pipelines from Russia and Central Asia to
Europe. Russia accounts for a quarter of the EU’s gas consumption
and more than 40 percent of gas imports. With gas demand rising 3
percent a year, the EU will consume 620 billion cubic meters in 2020,
500 billion of it imported, its figures show.

Nabucco has political backing from the European Union and the United
States as an alternative to Gazprom. Meanwhile Gazprom and Eni,
Italy’s largest oil company, are promoting a new $15 billion pipeline,
named South Stream, to rival Nabucco.

In January 2006, Nabucco catapulted to the top of the EU’s agenda after
Russia briefly cut gas deliveries to Ukraine over a price dispute,
blocking flows to Europe. Although Nabucco’s annual capacity of 31
billion cubic meters would account for only 5 percent of the EU’s 2020
gas needs, it would provide competition and may help lower prices,
the EU said.

"The Nabucco pipeline is a clear economic and political necessity,"
the EU’s energy commissioner, Andris Piebalgs, said in an interview
at the time.

Turkey, a member of the North Atlantic Treaty Organization and an EU
candidate since 2005, has long aspired to link the energy regions of
Central Asia with Europe. Its port city of Ceyhan receives one million
barrels of Azerbaijani oil daily through the Baku-Tbilisi-Ceyhan
pipeline.

Turkey’s push for more control over Nabucco, and more revenue,
clashes with the EU’s proposal that Turkey – like Bulgaria, Romania,
Hungary and Austria – collect only transmission fees tied to costs.

"All Turkey is trying to do is get some of the gas for domestic
consumption and its fair share of commercial transactions," said Mithat
Balkan, who until six months ago was the Turkish Foreign Ministry’s
energy coordinator.

Turkey does not feel any obligation to abide by rules set by a
27-member club that has not accepted it as a member, Balkan said.

"Turkey’s future in the EU is still not very clear, so to say Nabucco
is a test has no logic," he said. Negotiations over Turkey’s entry
into the EU have stalled, partly because of opposition to letting a
predominantly Muslim country into the group of historically Christian
nations.

By seeking more power over Nabucco, Turkey is taking a page out of
Russia’s book, exerting national control over export pipelines, said
Katinka Barysch, deputy director of the Center for European Reform,
in London. "The Turks want it to be a Turkish pipeline," she said.

Turkey has already exerted influence over Nabucco, last year blocking
Gaz de France from joining after the French Parliament made it a
crime to deny that the mass killing of Armenians by Ottoman Turks
during World War I was genocide.

Negotiations between the EU and Turkey over Nabucco are to end this
summer, when the EU must decide on future gas contracts. Even if they
can resolve their differences, Nabucco’s future is not certain. The
start of construction, set for this year, was put off until 2010,
pending questions about gas sources.

The project has pledges from Azerbaijan and Turkmenistan for 18 billion
cubic meters a year, or 58 percent of the pipeline’s capacity. Other
possible suppliers, Iran and Russia, are problematic.

"If you have a Nabucco that is largely dependent on Russian gas,
that defeats the purpose," said Gareth Winrow, an expert on energy
politics at Bilgi University in Istanbul.

Turkey has lobbied Europe to accept gas from Iran, on which the United
Nations has imposed sanctions over its nuclear program. Turkey signed
preliminary energy deals with Iran last year worth $3.5 billion,
earning it a scolding in March from Vice President Dick Cheney of the
United States. Several European countries have suggested they would
consider Iran as a gas supplier once it abides by UN demands to halt
uranium enrichment.

As the summer deadline nears, both the EU and Turkey face pressure
to find a compromise.

"Nabucco is the best commercial option for both Europe and the
Caspian suppliers, but the participants need to conclude the necessary
agreements if they want to stay competitive," said C. Boyden Gray,
U.S. special envoy for Eurasian Energy Affairs.