Tuesday, January 17, 2012
Nabucco Down but Not Out
On June 8, the Nabucco Gas Pipeline International GmbH signed project support agreements with the transit countries, but Azerbaijan did not sign the agreement as this would have signaled their choice of a route. Elshad Nasirov, vice present of the State Oil Company of Azerbaijan (SOCAR), said that Azerbaijan was not prepared to commit all its gas to one buyer. "We prefer diversity among the buyers, so we sell gas to the EU and Iran, as well as Russia," Hurriyet reported him as saying. Nasirov cast doubt on Turkish support of Nabucco, citing Turkish failure to provide Azerbaijan with a signed copy of the project support agreement, and failure to sign a bilateral transit agreement. "If we have not yet signed the transit agreement, should we understand that Nabucco has still not been sanctioned byTurkey?" he asked. In a foreshadowing of Azeri support for the Trans-Anatolian pipeline proposal, he told the Wall Street Journal that he preferred a smaller pipeline that could be expanded later to meet additional capacity. He also said that SOCAR would consider becoming a shareholder in this smaller pipeline, in order to influence transit tariffs and other decisions.
Contradicting Nasirov was Azerbaijan's Minister of Industry and Energy Natiq Aliyev. UPI reported him as saying his country supported the Nabucco project. "As part of this project, Azerbaijan can serve as a transit country, as well as a gas supplier, as the project is seen as a priority in light of the diversification of gas supplies," he said. UPI reported the German energy company RWE, whose support had been questioned after they signed a purchase agreement with Gazprom, remained committed to Nabucco, according to RWE Chief Executive Officer Joergen Grossman. In addition, Bayerngas announced its desire to join the Nabucco consortium, according to the Dow Jones newswire.
Nabucco submitted its formal proposal to SOCAR at the end of September, along with all its rivals. SOCAR spokesmen announced at various times that a final decision would be made as early as October 2011or as late as 2014.
Nabucco's inability to find gas supplies has forced it to delay by 3 years its scheduled date to begin operations. Orignally scheduled to be completed in 2015, completion date is now scheduled for 2018--although construction is still supposed to begin in 2013, according to the CEO of OMV Gerhard Roiss the Sofia News Agency. To solve this problem, Austria's President Heinz Fischer asked Turkmenistan to become a Nabucco supplier, according to Associated Press. According to Dr. Friedemann Muller of the German Institute for International and Security Affairs, the Turkmenistan gas is crucial for Nabucco to be successful. (The issue of bringing Turkmenistan gas to Azerbaijan via the Trans Caspian Pipeline is addressed in numerous other entries on this blog.)
The cost of Nabucco has also become an issue. Hungarian National Development Minister Tamas Fellegi complained, "No one can predict the final cost of Nabucco, but according to optimistic estimates, its cost may reach 24-26 billion euro," a far cry from the original projection of $8 billion. The European Commission believes the price will be closer to $10 billion, and Nabucco chief Reinhard Mitschek does not believe financing will be an issue. "I am confident that once we will have the gas supply and transportation contracts and...with political support we expect financing will be settled and will not create a bottleneck," quoted Reuters.
U.S. Special Envoy Richard Morningstar has never been a Nabucco supporter, and he has continued to denigrate its possibilities. At a news conference in Baku, he said that Nabucco retained U.S. political backing but that economic concerns should take precedence. "It's important if Shah Deniz producers and SOCAR choose a smaller pipeline as the first pipeline," he said according to Reuters.
Nabucco's primacy was challenged in December 2011, when SOCAR and the Turkish Pipeline Company (BOTAS) announced their plan to build their own pipeline, the Trans Anatolian pipeline. According to SOCAR president Sabit Bagirov, however, this development actually helps Nabucco's prospects: "With the implementation of the Trans Anadolu Dogalgaz Pipeline, the necessity to construct the Turkish section of Nabucco will disappear, and the builder will only need the gas pipeline section from Turkey through Bulgaria to the distribution point in Baumgarten in Austria. In other words, with the implementation of the Trans Anadolu Dogalgaz Pipeline, only that section of the Nabucco route falling on European teritory will need to be built," quoted the Moscow Times.
As 2012 begins, Nabucco appears no closer to completion than it did at the beginning of 2011. Construction is scheduled to begin on time, but completion will not be until 2018. The consortium relies on Shah Deniz II gas, which SOCAR wants to pump through the Trans Anatolian Pipeline. On the other hand, Nabucco could join this new project. The price continues to rise, and no alternative feedstock sources have been found. Nabucco is not dead, but it might be considered to be on life support.