EUROPE’S PLAN FOR ALTERNATIVE PIPELINE FACES BIG PROBLEMS
Ian Traynor in Vienna

The Guardian
Wednesday 7 January 2009

With its vast underground storage tanks and network of pipes, valves
and tubes, Baumgarten in the flatlands east of Vienna is one of
Europe’s biggest gas hubs. The first gas to cross the iron curtain
was pumped through thousands of miles of pipelines from Siberia and
into western Europe 40 years ago, arriving at Baumgarten for resupply
across the continent. The hub remains the most important junction
today, matching Russia’s huge mineral riches to Europe’s gargantuan
appetite for natural gas. But a new energy revolution is being plotted.

With the Kremlin and the giant Russian gas monopoly, Gazprom, locked in
their annual spat with Ukraine, the main transit country for Europe’s
gas supplies, over prices and politics, Europe is desperately seeking
ways to diminish its dependence on the 140bcm (billion cubic metres)
of gas it currently imports from Russia. The most favoured, most
ambitious and most contentious idea is to build a new pipeline beyond
the grip of Gazprom, which controls 90,000 miles of gas delivery
systems. Named after a Verdi opera, the Nabucco pipeline is supposed
to terminate at Baumgarten, ultimately pumping 31bcm of Caspian gas
through Turkey and the Balkans to Austria. "Diversification on the
terrestrial route for gas is a must for Europe," says Alexandr Vondra,
deputy prime minister of the Czech Republic, which has taken on the
EU presidency and sees energy policy as a priority.

The plan, born in 2002, is to thread almost 2,400 miles of pipeline
through the narrow geostrategic stretch between Russia and Iran, the
two countries with the world’s largest reserves of gas, to central
Europe. "If we have a dominant company like Gazprom trying to influence
all inroads of gas to Europe, we need to develop an alternative to
the supply of gas from Russia," says a senior European commission
official involved in energy policy. Given the worsening fallout from
the Russia-Ukraine dispute as well as the impact of last August’s
Russia-Georgia war on Caspian energy security, the Europeans are
trying to accelerate the Nabucco plans.

"We have good reason to believe that Nabucco will fly," says Reinhard
Mitschek, who manages the Nabucco consortium of six national energy
companies from the 21st floor of an office block above the Danube
in Vienna.

But the problems are formidable. European gas industry sources
complain that EU officials are confusing political imperatives with
economic, business and energy fundamentals. "This is an attempt
at reverse engineering in pipeline development," said a senior
industry source. "Usually you find the resource and then you build
a pipeline. With Nabucco it’s the other way round."

Pierre NoÃ"l, energy analyst at the European Council on Foreign
Relations, says: "This is a pr oject that does not exist except in
the minds of Brussels bureaucrats. They think you can build a pipeline
and then the gas will flow. It’s simply not credible."

Brussels has already spent millions on feasibility studies for a
pipeline that will consume more than 2m tonnes of steel and comprise
some 220,000 lengths of pipe from Turkey’s eastern border through
Bulgaria, Romania, and Hungary into Baumgarten on Austria’s border
with Slovakia.The cost is â~B¬8bn (£7.2bn) and rising. Construction
was supposed to start last year, then this year, now next year.

Last summer Mitschek ordered a survey of gas shippers and said the
results showed interest in pumping 16bcm through Nabucco, half the
total capacity but ample to get the pipeline operating.

The industry source said there was nowhere near enough to make Nabucco
viable. "The most important issue regarding this project is to obtain
enough gas," the Turkish president, Abdullah Gul, said last month. The
first target for gas to fill the pipeline is Azerbaijan, whose Caspian
field Shah Deniz II should come onstream around 2013, when Nabucco
is due to start pumping. "This gas is expected from Azerbaijan,"
says Mitschek of the 8bcm, or quarter of the pipeline’s capacity,
needed to start Nabucco operations.

But Gazprom is competing fiercely for the Azerbaijani prize in a
bidding war with the Europeans, offering above- market prices for the
gas while the Kremlin dangles20the political carrot of arranging the
return of the disputed enclave of Nagorno-Karabakh to Baku’s control.

"The Russians have offered a deal," says Elmar Mammadyarov,
Azerbaijan’s foreign minister. "But there are different options on
the table. At the end of the story, it’s our gas."

A recent western audit of Turkmenistan’s gas reserves cheered officials
in Brussels by confirming a doubling of the known resources. But
experts caution that it will be 20 years before sufficient Turkmen
gas can be pumped for Europe to evade Gazprom’s control. Similar
calculations apply to aims of filling Nabucco with gas from Iraq or
Iran, were there to be major political change in Tehran. Compounding
the problems is Turkey and its worsening relationship with the EU. Well
over half the proposed pipeline is to be located in Turkey.

Brussels is attempting to negotiate an agreement making Turkey the main
transit country for Caspian gas to Europe. The Turks are insisting
on 15% of the gas at discounted prices, a demand that would wreck
Nabucco financially, say officials in Brussels.

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