Confidence in the viability of the Nabucco
gas pipeline project - at least in its version
envisaged from 2004 to 2011 - seems to be fading
all around. On January 25, the Nabucco
consortium's management disclosed that it has
submitted "amended" proposals to the Shah Deniz
gas producers' consortium in Azerbaijan at the end
of December 2011.
The producers'
consortium will select one of the five competing
pipeline projects for transporting 10 billion
cubic meters (bcm) of Shah Deniz Phase Two gas to
Europe annually, starting in 2017. Shah Deniz
producers are now expected to announce a final
investment decision in Phase Two of gas extraction
by March, along with the final choice of a
transportation solution.
Nabucco's
"amended" proposals are not known publicly, but the
project's Austrian
management has dropped a few hints. It seeks at
this late stage to remedy one of Nabucco's
built-in weaknesses, namely, the absence of a
major gas-producing company among the consortium's
partners.
The consortium would also accept
the entry of new shareholders that would
contribute gas supplies or financing, and it would
negotiate about some combination or even merger
with one of the rival pipeline projects (rather
than pressing for exclusivity as heretofore).
RWE, a German partner in the Nabucco
consortium, would prefer a less costly,
lower-capacity option for transporting Azerbaijani
gas to Europe. This preference is unrelated to
RWE's negotiations with Russian Gazprom over joint
projects in Germany and elsewhere. Those
negotiations have already failed. According to RWE
CEO, Juergen Grossmann, the company simply needs
to limit its financial exposure and reduce capital
expenditures. The Azerbaijan-Turkey project for a
Trans-Anatolia Gas Pipeline, announced at
Christmas 2011, looks attractive to RWE,
Almost certainly, the unpublished amended
proposals go further than that. At a minimum, they
acknowledge, if only implicitly, that Nabucco has
not lined up the gas volumes and investment
funding that would justify the pipeline's design
capacity of 31 bcm annually and the construction
costs involved (unless and until Turkmen gas
becomes available).
In the absence of
financial commitments to a 31 bcm pipeline,
Nabucco has fallen out of synchronism with the
Shah Deniz field development schedule. That
schedule necessitates an investment decision and
the choice of a bankable transportation solution
in early 2012, so as to launch Phase Two of
production in this same year and the first
commercial gas flow by 2017.
Nabucco's own
development trails behind the producers' planned
timeframe. Conversely, Nabucco at 31 bcm looks
premature, as long as Turkmen gas has not yet
crossed the Caspian Sea to the South Caucasus. If
and when that happens, Turkmen gas could make
possible or indeed necessary a Nabucco Two.
Last year, Nabucco's Austrian management
admitted that the pipeline's costs would exceed
the initial 8 billion euro (US$10.4 billion)
estimate, which dated back to 2005. The management
announced in 2011 that it would revise that
estimate, but the result is not known. Others are
estimating the construction costs in the range of
10 billion to 14 billion euros. These are educated
guesses; meanwhile, the absence of publicly
available cost updates from the consortium itself
tends inevitably to erode confidence.
Vague, unsubstantiated references to
future gas supplies to Nabucco from northern Iraq
cannot encourage investors either, nor reassure
potential gas consumers downstream. References to
Iraqi gas fail to cite any dedicated volumes or
clear timeframes; imply a feeder pipeline,
Iraq-Turkey, at substantial additional cost to the
Nabucco project; and seem to overlook daunting
political uncertainties and risks in Iraq.
Nabucco representatives' briefings are,
however, correct to insist on the project's unique
advantages and promises. These include: the
Nabucco Intergovernmental Agreement (legally
binding treaty among Turkey, Bulgaria, Romania,
Hungary, and Austria), the project support
agreements (national commitments to the project),
right-of-way, licensing and permitting issues,
European Union legal and regulatory framework
covering the project, are all signed and wrapped
up. The FEED (front-end engineering design)
process seems fairly advanced after some changes
last year.
The European Commission's
political backing was also a unique asset to
Nabucco, reflecting the latter's strategic value
to European energy security. That backing came
close to facilitating credits to Nabucco from
European lending institutions, had the other
conditions fallen into place. The commission's
hard work to promote a trans-Caspian pipeline for
Turkmen gas could also have enhanced investor and
consumer confidence in the Nabucco project.
Those unique advantages notwithstanding,
the gas volumes and the funding are not yet lined
up for a project on Nabucco's ambitious scale.
Those hard-won advantages can be conserved for a
reconfigured Nabucco (Nabucco Two) as a follow-on
project, in the event that Shah Deniz producers
select one of Nabucco's rival pipelines for
transporting Azerbaijani gas to Europe. Those
rivals are smaller, better attuned to the
guaranteed gas volume from Shah Deniz, and thus
more bankable, compared with Nabbucco.
Among those five rival pipeline projects,
two are backed by the most influential partners in
the producers' consortium. These are: Azerbaijan's
State Oil Company with the project for a
Trans-Anatolia Gas Pipeline (TANAP, from the
Georgia-Turkey border to the Turkey-Bulgaria
border); and British Petroleum with its concept of
a South East Europe Pipeline (SEEP, from Turkey to
Hungary, with interconnectors farther afield).
Thanks to the participation of these influential
producers, TANAP and SEEP seem better placed than
Nabucco or the other rival pipeline projects to be
selected for the transportation of Shah Deniz Gas
to Europe.
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