Sunday, July 22, 2007

Future of the Nabucco Gas Pipeline

(more or less the same as my article published in Todayszaman on July 21, 2007)

Whether it is named after the 19th century Italian composer Giuseppe Verdi's opera of 1842 or recalls the greatness of Babylonian King Nebuchadnezzar II (Nabucodonosor in Italian), the architect of the mythical Hanging Gardens of Babylon, who reigned from about 605-562 BC, is not clear but one of best known statements on the fundamental life-and-death decisions “to be or not to be: that’s the question” from Shakespeare’s Hamlet applies to the future of Nabucco gas pipeline project perfectly well.

The Nabucco gas pipeline project[1] was advertised as a transport corridor carrying 31 billion cubic meters of Caspian, Middle Eastern and Egyptian gas through Turkey, Bulgaria, Romania and Hungary to Austria.

In anything but serious report called Turkey’s Energy Strategy by Turkish Ministry of Foreign Affairs released in June 2006, gives the following may of Turkey's planned gas pipelines.

Called by many as overly ambitious, the Nabucco project has many problems:

First, it was announced to be financed 30% by equity and 70% by debt to financial institutions but international financial community will be reluctant to provide debt for a pipeline whose source of gas is not secured or comes from Iran.

Second, the US will clearly object the use of Iranian gas in the line due to Iran Sanctions Act, Iran Freedom Support Act and now (if passed) Iran Sanctions Enhancement Act of 2007.

Third, gas from Azerbaijan’s Shah Deniz field is not sufficient enough to fill the announced capacity of the line and further, use of Turkmen gas (through planned Trans-Caspian line) will not materialize unless legal status of the Caspian Sea is determined. 17th meeting of experts from five Caspian littoral countries in Tehran in June 2007 left legal status of Caspian again undetermined. The hopes are left to the 2nd Caspian Summit in September 2007.

Fourth, arrived amount of Egyptian gas to Turkey through the Trans-Mashreq Gas Pipeline (also known as the Arab Gas Pipeline) will be very small. Jordan has already expressed interest to step up its imports.

Fifth, Russia’s recent agreements (about Turkmen gas imports in May as well as Turkey bypass project South Stream in June, which will heavily depend on Turkmen gas) may divert not only Turkmen gas as a possible source to Nabucco but also create a very strong alternative. Therefore it would not be surprising to see the involvement of Russia into Nabucco project. Gazprom CEO Alexei Miller already gave signals in an interview on July 1, 2007: “If the Nabucco project is economically grounded and has reliable demand for gas and the corresponding resource base, nothing can interfere with it. And in the future, Gazprom might join the participants in Nabucco, especially since we are in constant contact with its initiators.”
Maybe because of those reasons that Hungary’s Prime Minister Ferenc Gyurcsany told the International Herald Tribune “Nabucco has been a long dream and old plan. We don’t need dreams, we need projects.” Soon afterwards, he made a correction after being pressured by the EC though: “it would be better if Nabucco with non-Russia gas arrived first.”

Also noteworthy is the remark of Mr. Bhadrakumar, former Ambassador of India to Turkey, who said in his Asia Times article on June 20, 2007 that Putin “put the nail on the coffin of the Nabucco gas pipeline project.”

But, Turkish Energy and Natural Resources Minister Hilmi Guler was still insisting on the realization of Nabucco. He was reported as saying in May 2007: “we will definitely implement the Nabucco project providing for the export of natural gas from the Caspian Sea basin to Europe across Turkey. Nothing will affect its implementation.” We may not know whether it was due to the stress of upcoming elections or a natural result of ongoing negotiations, an agreement about the supply of Iranian and possibly Turkmen gas to Nabucco project was announced on July 13, 2007.[2]

According to the news Iran and Turkmenistan will pump 30 billion cubic meters of gas a year to Europe via Turkey, leaving no need for alternative supplies to the Nabucco pipeline project.[3]

“We don’t think that this is the time to make such investments in that particular sector. Iran hasn’t necessarily proved itself to be the most reliable partner in this regard. If you ask our opinion, do we think it is the right moment to be making investments in the Iranian oil and gas sector, no, we don’t think so,” McCormack said.

Ahmad Noorani, undersecretary for economic and commercial affairs at the Iranian Embassy in Ankara, when asked to comment on U.S. objections, said "this country's policies in the region are not positive or constructive."

“Iran made us an attractive offer... Should we not think of our country’s interests at this point? Is the United States going to ask why we did not seek their permission? I believe they (the US) will understand,” PM Erdogan said.

Note that Iran already gets Turkmen gas, so in theory there wouldn’t be a major problem to send some Turkmen gas supplemented with Iranian gas to Turkey. The real deal is yet to be seen but problems on the road, however, are the price of Iranian gas and the real reaction of the Big Brother!

The Nabucco project is still in the coffin but not buried yet. Its future will depend on how quickly, consistently, intensively and in an intelligent way the Turkish policy-makers can act in the coming months.

By the way, no trace has ever been found of the Hanging Gardens of King Nebuchadnezzar!

[1] 4.6 billion euro, 31 bcm after the second phase is completed at the end of 2013 and 8 bcm between 2012 until end 2013.
[2] Visiting Iranian Petroleum Minister Seyyed Kazem Vaziri-Hamaneh and Turkish Energy Minister Hilmi Güler on Saturday signed a Memorandum of Understanding on Iranian gas export to Europe via Turkey and Turkmen gas export to Europe via Iran. Both countries also agreed to develop part of the giant South Pars gas field in the Persian Gulf on a buyback basis.
[3] Iran has also agreed that the Turkish Petroleum Corporation (TPAO) will produce 20 bcm natural gas in the three phases of Iran's South Pars gas field.

Tags: Nabucco, Turkey


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