Four EU countries and Turkey signed an agreement yesterday (13 July) on the legal framework for the Nabucco gas pipeline, which is expected to decrease Europe’s dependence on Russian gas. Iraq has pledged to supply the pipeline with half of its capacity, without giving a detailed timeframe.
After months of heavy negotiations, the signature was hailed as a significant step towards the construction of the pipeline, which will run from Turkey’s eastern border through Bulgaria, Romania and Hungary to a gas hub in Austria.
Nabucco, with its capacity of 31 billion cubic metres, should provide Europe with an alternative to Russian gas after the January gas crisis between Russia and Ukraine.
“The pipeline now has a stable legal basis, and can guarantee gas transit under equal and transparent conditions for all customers,” said Reinhard Mitschek, managing director of Nabucco Pipeline International, the company managing the consortium.
The European Commission believes that Nabucco will eventually supply as much as 5-10% of Europe’s gas demand. Moreover, it will bring instant relief to countries that are entirely dependent on Russian gas, mainly on the EU’s eastern borders.
The transit agreement does not include many details but provides the necessary legal certainty to conclude supply contracts. Up till now, insufficient amounts of gas have been committed to fill the pipeline. Azerbaijan is seen as the first supplier, but Middle Eastern countries are expected to follow.
The intergovernmental deal enables the EU to invest the €200 million set aside for the project as part of its €5 billion economic recovery package. It was agreed that the subsidised energy projects would have to take off before the end of 2010 if the money is to make a difference in stimulating Europe’s economy, which is facing a severe recession.
At least half of Nabucco’s capacity has to be sold on the open market. The companies that own the pipeline will have the first option on 50%, but any remaining capacity will be placed on the market.
In order to simplify the process of shipping gas across multiple jurisdictions, a single operator, the Nabucco International Company, has been designated as the interlocutor for all companies wishing to use the pipeline.
Turkey’s claim to 15% of the gas running through its territory at favourable rates was not acknowledged in the agreement and remains a subject for further trade discussions. The EU considers this as a deal breaker and stressed that it wants Turkey to remain a transit country.
The intergovernmental agreement tiptoes around the issue, stating that EU law would apply within the Union’s borders. Within Turkey, a “specific regime consistent with Turkey’s domestic legal situation” would be put in place, the Commission said.
Furthermore, the EU’s gas market rules state that the pipeline must be open to third-parties within the EU unless a derogation is obtained. Moreover, a connection to a third country requires that country to apply a regime which is compatible with EU energy market rules.
The Nabucco consortium will now spend the remainder of the year trying to attract capacity contracts. The European Commission says companies in Azerbaijan and Iran have shown a strong interest in concluding immediate deals.
US says ‘no’ to Iran gas
Reuters reported US special envoy Richard Morningstar as saying that Russia is free to supply gas to the Nabucco pipeline, but reiterated Washington’s opposition to the use of Iranian gas.
Morningstar said the option had looked viable prior to the Iranian elections, but the ‘de facto’ coup in Iran “makes the immediate commercial goals dimmer for Nabucco”.
Recep Tayyip Erdogan, Turkey’s prime minister, reiterated his desire for Iran to become a supplier “when conditions allow”.
Iraq offers half of the capacity
Iraq’s Prime Minister Nur-al-Maliki, present at the Turkey summit, said that his country would supply Europe with 15 billion cubic metres, or half of Nabucco’s capacity.
However, Maliki did not give a timeframe, nor did it become clear if these sales would be for Nabucco.
Maliki’s comments came a day after Iraqi government spokesman Ali al-Dabbagh said Iraq did not have any surplus gas to sell via Nabucco at present.