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Nabucco in ‘David vs. Goliath’ battle for Azeri gas

10-12-2010 (updated: 13-12-2010 )

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Pressure is growing on the Nabucco consortium to reveal its hand over its tender for Azeri gas. The winner, to be announced in April, will be master of Europe's Southern Gas Corridor, designed to bring gas from sources other than Russia.

Azerbaijan, a key potential supplier country for the Nabucco project, heaped pressure on the pipeline consortium to reveal its intentions and recognise its alleged weaknesses.

Elshad Nasirov, the country's top negotiator for a tender to access ten billion cubic metres (bcm) of Azeri gas from the Shah Deniz II field, said that two Nabucco competitors, namely the Turkey-Greece-Italy Interconnector (ITGI) and the Trans-Adriatic Pipeline (TAP), could "turn out to be more attractive".

"We are not going to pay for the empty capacity of Nabucco," said Nasirov in a much-noticed interview, published by the European Energy Review. 

Nasirov was referring to the fact that Nabucco has a designed capacity of 31 bcm, while for the time being, no gas is available to fill the pipeline – except for the 10 bcm at Shah Deniz.

"We do not promise additional gas. Everything depends on the price," Nasirov said, adding that Azerbaijan would not put "all its eggs in one basket" and hinting that the 10 bcm could be sold to more than one bidder.

"We tell Nabucco: quote your tariff'," Nasirov said, adding that he was waiting for "a serious proposal from Nabucco" in order to compare it with other proposals. But he made plain that in his view, Nabucco was "still uncertain" without a second source of gas.

A similar message came on Wednesday (8 December) from Umberto Quadrino, CEO of Edison, the Italian energy company promoting ITGI.

"Nabucco doesn't justify investment for a pipeline with a capacity of 30 bcm," he said.

Oettinger to act as referee?

Quadrino was speaking at a European Parliament dinner hosted by Greek and Italian MEPs in the presence of EU Energy Commissioner Günther Oettinger. There, he pleaded for "collaboration" between ITGI and Nabucco, saying that Oettinger could convince the Nabucco consortium to adopt a two-step approach to building the Southern Gas Corridor.

The first step would be taken by building ITGI, with Nabucco coming only at a later stage, when gas from new sources becomes available, he said.

Quadrino suggested that contact had already been established between ITGI and Nabucco to discuss such a scenario.

But a Nabucco spokesperson denied that any contact had been made. "I cannot talk for our shareholders but our project company," said Cristian Dolezal, speaking to EURACTIV from Vienna.

For Dolezal, the two-step approach promoted by the ITGI partners is incomprehensible to his company. Nabucco, he said, is the only project in the Southern Gas Corridor that provides a new highway from Turkey's eastern border right up to Austria.

"ITGI would lead to Brindisi, as far as I know," Dolezal said.

ITGI's promoters insisted that Brindisi would not be a dead-end for the pipeline and said they would be able to supply up to five bcm through an interconnector linking Greece and Bulgaria, which they said would be ready in two years' time.

Experts present at the Parliament dinner told EURACTIV that only Nabucco actually provided for new pipes to be laid across Turkey, instead of using the existing network. In their opinion, this puts the 'Goliath' project at an advantage.

Positions

US Ambassador Richard Morningstar, secretary of state and special envoy for Eurasian energy, said the Nabucco pipeline project is "a good, but not the only project," Russian daily Kommersant reported.

"We support not only Nabucco, but also the entire South Energy Corridor - a series of pipelines that will be required to deliver Caucasian and Central Asian gas to Europe via Turkey," Morningstar was quoted as saying.

Morningstar said EU companies must make a commercial decision about which project is the most reasonable and beneficial.

"We would have preferred Nabucco, but that does not mean it will be implemented first," he said.

A spokesperson for RWE, Germany's biggest energy supply company and a shareholder in Nabucco, sent EURACTIV the following statement following the publication of this article:

"Nabucco is a multi-sourcing gas supply project. This is important to note in terms of diversification of supply and risk. Azerbaijan and the Shah Deniz phase 2 development will play a pivotal role in Nabucco's success. The recent developments and announcements in Turkmenistan only prove to reinforce this picture. Nabucco can be realised with Azeri and Iraqi gas only but Turkmenistan can become the third supplier. With the continued political will and the right commercial terms, Europe, the Caspian region and the Middle East are poised to be become interdependent partners.

"With regard to the pipeline itself, Nabucco is waiting for these gas supply arrangements to firm up. Engineering works continue, environmental studies are being progressed and the financing is being developed: a mandate letter with the European Investment Bank, the European Bank of Reconstruction and the International Finance Corporation has indicated financing of up to €4bn for the project.

"Once gas supply has been committed, Nabucco can start the Open Season for booking transportation capacity. We are not concerned about the demand for such capacity in the market – in fact we expect it to be over subscribed if the gas supply is made available. Once the Open Season process is complete, we can then move forward to a Final Investment Decision, after which construction can begin. As long as the gas supplies are committed in the first half of 2011, then construction can begin in 2012. The first gas can then flow by the end of 2015, respectively in the beginning of 2016."

Background

The 'Southern Gas Corridor' is seen as part of a 'New Silk Road' of transport and energy links between Europe and the Caspian region.

The best-known pipeline project is Nabucco. But other smaller projects, such as the Trans-Adriatic Pipeline (TAP), the Turkey-Greece-Italy Interconnector (ITGI) or the Azerbaijan-Georgia-Romania Interconnector (AGRI), all have the potential to become important elements of the Southern Gas Corridor and even call into question the future of Nabucco.

Some, like Russia's South Stream, even have the potential to become Nabucco 'killers' by making the flagship EU project irrelevant (more.)

Timeline

Further Reading

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