Russian-Azeri gas deal a blow to Nabucco

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Gazprom and the State Oil Company of Azerbaijan last week signed a memorandum of understanding for long-term supplies of Central Asian gas to Russia at market prices, further undermining the EU’s favoured Nabucco pipeline, analysts said.

According to a Gazprom press release, the parties committed to “massive long-term cooperation” after an agreement was reached on 27 March to settle the terms of Azerbaijan’s gas sales to Russia. 

First deliveries are expected in January 2010 on delivered-at-frontier terms, according to the Memorandum of Understanding. 

Pavel K. Baev, a senior researcher from the Oslo International Peace Research Institute, suggests that the project could make Nabucco irrelevant as Azerbaijan is seen as the most likely first gas supplier for Nabucco. 

Behind the signed agreement lies a pipeline project, Baev said, which like Nabucco could also be named after an opera, such as ‘Prince Igor’ by Alexander Borodin. The pipeline would channel Russian gas together with supplies from Azerbaijan towards south-eastern Europe, via the planned South Stream pipeline and under the Black Sea, from Novorossiysk to Varna in Bulgaria. 

Agata Loskot-Strachota, an energy policy analyst at the Centre for Eastern Studies in Warsaw told EURACTIV that sales of Azeri gas to or via Russia would reduce the volumes available for rival pipelines such as Nabucco and weaken the incentive to get involved with them. 

She recalled that the 27 march memorandum is just a subsequent element in a process which began several months ago. But although Baku had seemed hesitant at first, the situation has now changed, she argued. 

“The Azeri situation has significantly changed in the last nine months. The Russia–Georgia war increased Moscow’s position in the South Caucasus and showed the relative weakness of the West. There have also been important developments in the policy of Turkey, Azerbaijan’s strategic ally, in the region. The visible intensification of the relations between Ankara and Moscow, the proposal for increased cooperation of these two in the Caucasus, the change in Turkish-Armenian relations and rumours of the possibility of solving the Nagorno Karabakh conflict, led to a reshuffling of the geopolitical situation in the South Caucasus, diminishing the strength of the relations between Azerbaijan and Turkey and placing the pro-western Azerbaijan in a difficult situation,” Loskot-Strachota explained. 

“Azerbaijan is forcing both EU and Russia to issue more concrete and commercially attractive offers. This means that the time is running out for those European consumers or companies, who want to have Azeri gas shipped to the EU independently of Russia,” the Polish researcher concluded. 

Russian setback in Turkmenistan? 

In the meantime, the Russian press regretted that a recent visit of Turkmen President Gurbanguly Berdymukhammedov to Moscow on March 25 had been inconclusive. Russian President Dmitry Medvedev had hoped to sign an intergovernmental agreement on building a West-East pipeline across Turkmenistan, which would have advanced the project lobbied by Moscow to a new level. 

Under the plan, the pipeline would link deposits in northeast Turkmenistan to the Caspian Sea. However, the sides have not been able to sign the agreement, RIA Novosti wrote. 

Alexander Jackson of the Caucasian Review of International Affairs, expressed pessimism regarding Nabucco. He too attaches importance to the recent Gazprom deal with Baku. 

"Azerbaijan is growing increasingly frustrated with Europe's dithering and is increasingly looking at bilateral deals - with Greece and Italy but also, worryingly for the EU, with Russia and with Iran. In February, Tehran offered to invest $1.7 billion in developing the second phase of Azerbaijan's Shah Deniz gas field, on March 27 Azerbaijan began formal talks with Gazprom over selling gas to the Russian energy giant. This is a concerning development for the West, suggesting that Azerbaijan's exasperation has reached the point where it is actively courting other buyers," Jackson writes. 

The Nabucco pipeline project aims to decrease the EU's dependence on Russian imports by bringing Caspian gas to a hub in Austria via the Balkans. 

Azerbaijan is seen as the project's most likely first gas supplier, while in future, it would also bring supplies from the Middle East. The gas would be shipped to Europe via Turkey, Bulgaria, Romania and Hungary. 

The pipeline is scheduled to begin operating in 2014, but it is not yet certain that it will be built. Continued hesitation by the private sector to finance the project, not to mention the brief war between Georgia and Russia in August 2008, means that Nabucco faces an uncertain future (EURACTIV 25/08/08). 

Officially, the European Commission refuses to admit to any setbacks. But the project faces many obstacles, including the planned rival South Stream pipeline supported by Russia's Gazprom. Recently, leading energy experts warned of a series of difficulties in implementing Nabucco in the wake of the Russia-Ukraine gas dispute (EURACTIV 20/01/09). 

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. 

Several EU governments, including Germany, France and Italy, which have close ties with the Kremlin as well as long-term gas contracts with Gazprom, are not convinced of the need for the new pipeline. 

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