EU countries sign geopolitical Nabucco agreement

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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.

Legal wrangling

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.

(With agencies.)

Turkey's Prime Minister Recep Tayyip Erdogan said that the signing ceremony is just a beginning, as a lot of work remains, EURACTIV Turkey reported.

"When the pipeline will be completed, not only the countries will benefit from it, but the entire region [...] The pipeline is seen as a dream by several countries [...] We are already working for increasing its capacity".

European Commission President José Manuel Barroso argued that the signature of the political agreement marked the participants' determination to make the pipeline a reality as quickly as possible. "I'm proud of the role that the Commission has played and extremely pleased that Turkey and the member states of the European Union have reached an agreement based on the principles of mutual solidarity, mutual equality and interdependence," he said.

EU Energy Commissioner Andris Piebalgs stated that Turkey and the EU had found "the right balance". "Let us hope that this is a starting point for further fruitful cooperation in our bilateral relationship, between supplier and consumer countries, and to give all players the freedom to pursue their own interests within a secure legal framework," he said.

Reinhard Mitschek, managing director of Nabucco Pipeline International, called the intergovernmental agreement a "significant breakthrough" in realising the project. "The pipeline now has a stable legal basis, and can guarantee gas transit under equal and transparent conditions for all customers," he said.

Werner Auli, chairman of the Nabucco Steering Committee, said: "The intergovernmental agreement lays down the political and legal foundation for the project. This strong expression of political commitment by all transit countries provides the project company with the confidence needed to take forward and successfully operate the pipeline."

An inter-governmental agreement to have the Nabucco gas pipeline operational by 2014 was due to be signed on 13 July in Ankara, the European Commission announced recently (EURACTIV 06/07/09).

Nabucco will bring Caspian gas to a hub in Austria via Turkey, Bulgaria, Romania and Hungary. The recent gas crisis between Russia and Ukraine has convinced decision-makers of the need to speed up the project (see EURACTIV LinksDossier on 'Pipeline Politics'). 

Azerbaijan is seen as the project's most likely first gas supplier, while in future, it would also bring supplies from the Middle East. Supplies from Iraq are currently being considered, while in future Iran could also become an important supplier.

The Nabucco consortium comprises leading European energy companies: OMV of Austria, MOL of Hungary, RWE of Germany, Bulgargaz of Bulgaria, Transgaz of Romania and Botas of Turkey. But three consortium members - OMV, MOL and Bulgargaz - have already signed up to Gazprom's South Stream pipeline, raising questions about conflicts of interest, or indeed their commitment to Nabucco. 

Meanwhile, Russia is stepping up efforts to start implementing its rival 'South Stream' project (EURACTIV 25/05/09). The country's Energy Minister Sergei Shmatko recently announced that South Stream would more than double its planned capacity from 31 billion cubic metres per year (bcm/y) to 63bcm/y. Italy's ENI is Gazprom's main partner in 'South Stream'. 

Turkey has used the Nabucco project as a bargaining chip with the EU. Ankara is also seeking to use 15% of all natural gas flowing through the pipe as part of the deal for letting it pass through Turkish territory (EURACTIV 29/05/09). 

  • By end 2009: Nabucco consortium plans to begin to realise engineering operations, including commissions for pipes and compressor stations. 
  • 2011: Actual construction begins. 
  • 2012: Suppliers are determined. 
  • 2014: Pipeline becomes operational.

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