BATTLE OF THE PIPELINES…
By Patrick Seale

Gulf Daily News
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July 23 2009
Bahrain

The Bulgarians will not easily forget the two weeks last winter when
they nearly froze to death – Russia had shut off the flow of gas to
put economic and political pressure on Ukraine, a weaker neighbour
with which it was feuding over Kiev’s unpaid gas bill. Bulgaria was
an innocent victim of the dispute.

Dependent on Russian gas for almost half its supplies, the European
Union took anxious note. Evidently, it could no longer depend on
Russian goodwill. The immediate lesson it drew from the affair was
that it must urgently diversify its sources of gas – but without
giving undue offense to Gazprom, Russia’s giant gas combine, which
remains a leading supplier to the European market.

The EU, therefore, began to give close attention and high priority
to a 3,300km pipeline project, named Nabucco, first devised in 2002,
which plans to carry gas from non-Russian sources, such as Azerbaijan’s
offshore reserves in the Caspian Sea, to Erzurum in eastern Turkey,
and then across the Balkans to Europe, by-passing both Russian and
Ukrainian territory.

Nabucco, named after an opera by Verdi, is an eight billion euro
mega-project able to carry 32 million cubic metres of gas a year
from 2015. It has seemed something of a pipedream until last Monday,
when five heads of government and the European Commission president,
JosŽ Manuel Barroso, signed a ‘Nabucco intergovernmental agreement.’

The deal determined the all-important question of transit fees. Turkey,
for example, received a pledge of 400m euros a year.

The five leaders, whose countries lie along Nabucco’s route are,
Turkey’s prime minister Recep Tayyip Erdogan, Bulgaria’s prime minister
Sergei Stanishev, Romania’s prime minister Emil Boc, Hungary’s prime
minister Gordon Bajnai and Austria’s chancellor Werner Faymann.

With the exception of Erdogan, these leaders rarely make international
headlines. But they now find themselves in the middle of a pipeline
battle.

Eager to maintain its dominant position in the European gas market,
Russia is pressing ahead with an alternative pipeline, named South
Stream, which, travelling south from Russia, would cross under the
Black Sea before heading up through Romania, Hungary and Austria to
western Europe.

As planned, Nabucco will not depend on Azerbaijan alone for its gas
supplies. It hopes to draw on supplies from Turkmenistan as well,
and also from Iraq and Iran.

Indeed, at the Ankara summit on 13 July, Iraq’s Prime Minister Nuri
Al Maliki offered to supply 15bn cubic metres of gas a year by 2015,
enough to fill half of Nabucco’s capacity. Nabucco’s sponsors have
always been worried about the source of the gas they will need to
fill the pipe. Iraq’s offer goes a long way to address this concern.

Iraq, and its vast unexploited oil and gas reserves, is very much
on the mind of international oil companies. If Nabucco looks like a
winner, investment in Iraqi gas should not be hard to find. Kurdish gas
from fields in northern Iraq could become available as early as 2010.

Turkey is in many ways the key to both projects. It is seeking a
greater role in the Caspian and the Caucasus, while greatly improving
its relations with the Arab world and Iran. Erdogan, who has pioneered
better relations with Tehran, is keen to see Iranian gas flow through
the Nabucco pipeline, a position the US strongly opposes – at least
until its own relations with Tehran improve.

Turkey’s role as a crucial energy hub must certainly improve its
prospects of eventual EU membership. JosŽ Manuel Barroso hinted at
this when, following the signing of the agreement in Ankara, he said
that it could "open the door to a new era in the relationship between
the European Union and Turkey, and indeed beyond."

A small obstacle which will need to be overcome is Azerbaijan’s concern
at Turkey’s warmer relations with Armenia. Azarbaijan fought a war
with Armenia in the early 1990s over Nagorno-Karabach, a land-locked
enclave in southern Azerbaijan, largely populated by Armenians. The
enclave is de jure part of Azerbaijan, but it is run de facto by a
would-be independent ‘Nagorno-Karabakh Republic.’ Its future status
remains in dispute.

The battle of the pipelines is by no means settled. The EU does
not want a breach with Russia – indeed it cannot afford one. But
nor does it want to depend too heavily on Russian gas, which might
give Moscow political leverage over EU policies. Finding an answer
to this puzzle is a major concern of Andris Piebalgs, the EU energy
commissioner. His sensible goal is reliable gas supplies for the EU
based on diversification of supplies and solidarity between member
states.