MONTREAL - With the entry of Iraq into the mix of potential suppliers of
natural gas for the Nabucco pipeline to Europe and the proliferation of
alternative supply lines beyond the Russian-sponsored rival South Stream
pipeline, the "classical" variant of the Nabucco pipeline is undergoing
significant modification, just as it moves closer to final realization.
The first catalyst of this development was the signing by the European Union
and Turkey last July in Ankara of the Nabucco Intergovernmental Agreement
(NIA), which in its own words "ensures the regulatory coherence of this project
and makes it compatible with the legal requirements that apply within the
European Union's internal gas market" as well as with
"international law, European law and the law of Turkey".
This technical legal verification is necessary in view of the fact that gas
transiting Turkey is subject to a domestic Turkish legal regime while the same
gas transiting EU member states is subject not only to their national legal
codes but also to EU community law.
The second catalyst was a multilateral meeting this month in Batumi, one of
Georgia's port cities on the Black Sea and already home to important energy
infrastructure. The meeting discussed a number of projects, but in the natural
gas sector its attention was focused on the White Stream project. This proposes
to bypass both Russia and Turkey by taking natural gas from the Caspian Sea
basin across Azerbaijan and Georgia, then under the Black Sea, for delivery to
the Balkan member-states of the EU, notably Romania, and further shipment
westwards. (See Turkey
risks gas bypass, Asia Times Online, March 20, 2009, and
Azerbaijan and Turkey clash over energy, Asia Times Online, October 23,
2009).
Originally announced as an "International Energy Summit", the meeting was
downgraded to "conference" level after Ukrainian president Viktor Yushchenko
decided not to attend in order pursue his ill-fated electoral campaign - in the
event, he secured an embarrassingly low 5.5% of the first-round vote. The
presidents of Azerbaijan and Poland then sent their regrets for protocol
reasons. The conference nevertheless proceeded as a preparatory event for the
still to be rescheduled high-level summit, and all interested participants did
send representatives: Azerbaijan, Bulgaria, the EU, Hungary, Kazakhstan,
Poland, Romania, Turkey, Turkmenistan, Ukraine and the US.
It discussed two main projects: the international White Stream natural gas
pipeline (now integrated into the EU's Southern Corridor energy strategy) and
the reversal of the Odessa-Brody (now also called Sarmatia) oil pipeline inside
Ukraine to its originally intended east-to-west direction using crude from
Azerbaijan. I will address the latter issue in a separate article, in the
context of its priority within the Euro-Asian Oil Transportation Corridor
(EAOTC) strategy subscribed to at the end of May 2008 in Kiev by the presidents
of Azerbaijan, Georgia, Lithuania, Poland and Ukraine.
According to a Georgian government statement, bilateral meetings were held
between Georgia on the one hand and, respectively, representatives of
Azerbaijan, Bulgaria and Romania. This statement suggested that the main points
of discussion were the transportation of liquefied natural gas (LNG) and
compressed natural gas (CNG). These meetings, therefore, were clearly directed
first of all towards the discussion and implementation of plans for the
bilateral Azerbaijan-Bulgaria agreement reached in November for 8 billion cubic
meters per year (bcm/y).
The CNG is therefore a more immediate prospect, and projects for construction
of CNG terminals were presented at Batumi while the more expensive LNG option
was the subject of only more general discussions. None of this prevented the
more complex and potentially more significant White Stream project from being
officially declared the conference's first-ranked priority project.
White Stream, which would transport natural gas from the Caspian Sea basin to
Romania (in one variant with intermediary landfall in Ukraine for this
country's supply) via the Georgian port of Supsa on the Black Sea and then
through an undersea pipeline, is projected to open with an initial capacity of
8 bcm/y, which would rise to 24-32 bcm/y when connected to Central Asia natural
gas supplies.
None of these projects is really a competitor to Nabucco, and they all are
integrated within the EU's Southern Corridor energy strategy. Europe's demand
for natural gas in the 21st century will be great enough to provide consumers
for all suppliers of all these pipelines. It is right now a question of
establishing the multilateral frameworks (such as the NIA) that are necessary
to give the economic, industrial and financial players the political guarantees
of stability and security without which they will not proceed.
Indeed, Iraq looks now to be playing a key role in Nabucco. Last week, European
Union Energy Commissioner Andris Piebalgs and Iraqi Oil Minister Hussein
Shahristani signed a memorandum on a strategic energy partnership. Estimates by
EU experts suggest that Iraq could see between 5 and 10 bcm/y into the Nabucco
pipeline. (The contract between Turkey and Iraqi Kurdistan is already for 8
bcm/y.) This would give Iraq a key role in the provisioning of the Nabucco
pipeline.
The problem between Turkey and Azerbaijan is the appearance that Turkey seeks
to claim a privileged position by virtue of its geographical situation. For
Turkey, this special situation would result in higher transit revenues,
contravening the principle that all parties should pay the same fixed price for
each kilometer of pipeline through which their gas flows. The complication
seems to be that the NIA necessarily concedes to Turkey the authority to define
its own domestic legal regime for regulating such prices.
At least for Nabucco, Turkey should receive gas as committed by its suppliers,
setting the transit price only as a function of the transit costs, that is, the
distance the gas travels from the border to its consumption within Turkey.
Turkey, however, is playing a game to convince, or to try to convince,
Azerbaijan that its participation is not absolutely necessary for Nabucco's
feasibility. That is why Turkish Energy Minister Taner Yildiz was in
Turkmenistan last month for the opening of the new short pipeline expanding the
volumes of natural gas that Turkmenistan will sell to Iran. He wants Azerbaijan
to know that a pipeline under the Caspian Sea is not the only route by which
Turkmenistan's natural gas can reach Turkey for transshipment on to Europe.
The implication is that gas from Turkmenistan could reach Turkey by transiting
Iran overland. And so in recent years Turkey has sought to bring Iran into
Nabucco, if not as a direct producer of natural gas (Turkey already consumes up
to 8 bcm/y from Iran through a bilateral pipeline), then as a transit country
for gas from Turkmenistan through Iran directly to Turkey circumventing
Azerbaijan, which has had problems over negotiations with Turkmenistan for
import of natural gas for onward transshipment into the Nabucco pipeline.
A pipeline along this route exists, but it is in such a state of disrepair that
it would have to be entirely reconstructed and expanded for the purpose. The
technical and financial aspects of such a project, not to mention the political
ones, render such a project highly unlikely.
There has been a fair amount of disinformation lately concerning Turkmenistan's
gas reserves and export capabilities. On the one hand, Russian observers assert
that the shutdown of the Turkmenistan physical plant from April through
December 2009 involved 150 facilities, the totality of which will not be back
up and running for several years, thus diminishing the export capacity of
Turkmenistan. Likewise, the new pipeline to China from Turkmenistan has been
invoked in favor of the arguments that all of Turkmenistan's production is
spoken for and that there is nothing left for Europe.
These arguments are intended to misdirect and mislead the unsophisticated
observer. In fact, it has always been the case that any gas from Turkmenistan
and exported to Europe via Azerbaijan and the Nabucco pipeline would come in
the first instance from the offshore Caspian sector of Turkmenistan and/or the
adjacent onshore regions. The gas contracted for China, the gas contracted to
Iran, and the gas contracted to Russia all come from other parts of
Turkmenistan, and they have never been seriously considered as fodder for
Nabucco.
In the very long run, it may turn out that Iraq supplies still greater
quantities of gas to Nabucco than already agreed, even obviating Turkmenistan.
Contractual arrangements with Iraq have certainly accelerated past the
negotiation stage, which they have not yet even reached with respect to
Turkmenistan. In that case, Turkmenistan could later come on line to supply a
White Stream project, in subsequent years, that expands beyond its currently
projected 24-32 bcm/y to double or triple that capacity. Demand for natural gas
in Europe as the 21st century progresses would certainly justify such an
expansion of volume.
Dr Robert M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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