Eurasia Daily Monitor

Tuesday, February 2, 2010-Volume 7, Issue 22

NABUCCO PROJECT STAKEHOLDES LOOK FOR LEADERSHIP IN BRUSSELS

by Vladimir Socor

Stakeholders and other interested parties in the Nabucco project
are expressing concern over the project’s apparent stagnation,
and calling for urgent consultations to revitalize it. Nabucco is simply
marking time in the absence of a coordinating mechanism between
producer, transit, and consumer countries, and without hands-on
leadership from the European Union during the transition from one
Commission to another in Brussels. The transition and distractions in
Washington have also limited the ability of an otherwise supportive
United States to help deal with the logjam on Nabucco.

Political problems have recently added new complications to the
Nabucco project. One such problem, clearly recognized by project
stakeholders and other European observers, but underestimated in
Washington, is Azerbaijan’s political alienation, resulting from
recent US policies on the Armenia-Azerbaijan conflict. Those policies,
in their result if not intent, came close to de-aligning Turkey from
Azerbaijan, while strengthening Russia’s and Armenia’s
hands in the negotiations on the Karabakh conflict. At perceived risk of
isolation, and lacking an outlet to Europe for its growing gas surplus,
Azerbaijan is open to Russian and Iranian offers to commit its gas for
export in those directions.

Azerbaijani President Ilham Aliyev reminded international media
during the Economic Forum in Davos that Gazprom has offered to buy all
gas volumes available for export in Azerbaijan (`as much as
Azerbaijan can sell’) at European-level prices. `If
Nabucco continues to be delayed, we will indeed sell more gas to
Gazprom,’ in line with Azerbaijan’s export
diversification policy. Meanwhile, the $20 billion investment decision
for Phase Two of Azerbaijan’s Shah Deniz gas field (the source
for Nabucco’s first stage) is held up, due to persistent
uncertainty about the Nabucco pipeline, Aliyev observed. `So far
we do not know which leader would move the process forward. Who will
engage in negotiations with gas producers and transit countries? Who
will do the marketing for this gas? What will be the pricing? These are
a lot of questions that remain unanswered for quite a long
time,’ he asserted. Aliyev also noted Turkey’s
obstruction of pricing and transit agreements for Azerbaijani gas:
`how can we move ahead [with Nabucco] in such
circumstances?’ (ANS, Bloomberg, January 27; , Wall
Street Journal, January 28; Hurriyet, January 29).

Baku remains willing and indeed eager to see the Nabucco project
move forward and looks to the EU for leadership in that regard. Aliyev
made this clear to executives of the German RWE Company (a stakeholder
in the Nabucco project) in elaborating on his remarks in Davos
(Bloomberg, January 29).

Turkish Prime Minister Recep Tayyip Erdogan and his Bulgarian
counterpart Boiko Borissov are also urging the EU to play a more active
role in advancing the Nabucco project. Borissov has most recently
expressed concern over the slow pace of Nabucco’s development
and pledged Bulgarian support to advance the project. At their joint
news conference, Erdogan asked Borissov to ensure that EU member
Bulgaria advocates the Nabucco project with the European Commission in
Brussels (BTA, January 29; Hurriyet, January 30). Erdogan’s
remarks implicitly offer Brussels an opportunity to facilitate the
negotiations between Ankara and Baku.

On January 18, Romanian President Traian Basescu urged more active
EU support for Nabucco when meeting with the European Council’s
new President, Herman van Rompuy, in Brussels (Agerpres, January 18).
The Hungarian government and the private MOL Company (stakeholder in the
Nabucco consortium) also look forward to a proactive role by the
European Commissioner.

The EU’s outgoing Energy Commissioner, Latvia’s Andris
Piebalgs, a committed supporter of Nabucco and the Southern Corridor,
had little backing from Western Europe’s large and influential
countries. In one of his last acts in that post on January 18, Piebalgs
signed a memorandum of understanding on energy partnership between the
EU and the central government of Iraq. Piebalgs termed Iraq an important
element in the EU’s energy supply diversification strategy. The
EU Commission is mainly interested in Iraqi gas from the
Kurdish-administered area for the Nabucco and Southern Corridor
projects. Nabucco stakeholders expect ultimately 5 to 10 billion cubic
meters (bcm) of gas per year from Iraq’s north, via Turkey to Europe.

Some in the energy business have tended to imply that gas from
Iraq could somehow reduce the vital importance of Azerbaijani gas for
Nabucco. This view may reflect frustration with the Ankara-Baku impasse
and some indifference about Turkey’s responsibility. However, difficult
pre-conditions need to be fulfilled before any gas can flow from
northern Iraq (presuming a satisfactory security situation). As listed
by the Kurdish administration and the central government in Baghdad, the
pre-conditions include: meeting local demand for gas, contributing to
Iraq’s overall gas supply, and negotiating revenue-sharing
between Kurdish and Baghdad central authorities, under a
yet-to-be-adopted oil and gas law for Iraq. All this involves political
complexities and time-consuming negotiations. Thus, Azerbaijani gas
remains the existential issue for Nabucco at least in the first stage;
and Turkmen gas via Azerbaijan, just as vital for Nabucco’s
second stage and the overall Southern Corridor.

–Vladimir Socor