www.cnsnews.com
July 14, 2009
(CNSNews.com) – A strategic battle over natural gas supplies to Europe reached a new stage Monday with the signing of an agreement for a U.S.-backed pipeline to take Caspian gas across Turkey to Western markets and so reduce reliance on Russia. But a recent deal between Azerbaijan and Russia showed that Moscow does not intend to give up its large share of the suppliers' market – and the clout its dominance brings – without a fight.
With U.S, and European Union officials observing, Turkey and four Central European countries – Bulgaria, Romania, Hungary and Austria – signed an intergovernmental agreement in Ankara to press ahead with the Nabucco project. Due to become operational in 2013, the $11 billion pipeline will initially carry 8-10 billion cubic meters (bcm) a year, eventually climbing to 31 bcm. The 2,000-mile route will cross Turkey from east to west, then go through Bulgaria, Romania and Hungary, ending at a major gas hub in Austria.
At its eastern end the project aims to link up with existing pipelines carrying gas from Azerbaijan through Georgia and on to the Georgia-Turkey border. Europe depends on Russia for around a quarter of its gas needs, most of it by pipeline via Ukraine. Disputes between Moscow and its former Soviet neighbor have several times resulted in Russia closing the taps in mid-winter, affecting supplies and triggering alarm in parts of Europe.
Given Russia's readiness to use its energy resources for political leverage, lessening European dependence on Russian supplies is the key strategic rationale for the Nabucco project. "Energy security is gained through diversity – diversity of energy sources, delivery routes and consumer markets and the Nabucco pipeline is an example of that diversity," State Department spokesman Ian Kelly said in a statement welcoming the signing.
Determined that the gas continue flowing through networks under its control, Russia considers Nabucco a strategic threat. It has been working to counter the plan, both through its rival South Stream project, which aims to carry Russian gas under the Black Sea – bypassing both Ukraine and Turkey – and through the Balkans to Western Europe; and by doing its own deals with Azerbaijan.
On June 29, Russian President Dmitry Medvedev and the CEO of the Russian gas giant Gazprom, Aleksei Miller, visited Baku to sign an agreement on Azerbaijan gas deliveries to southern Russia. Though small to begin with – 500 million cubic meters a year – the arrangement provides for future expansion.
Russia, which has the world's biggest reserves of natural gas, evidently does not need to buy small amounts from Azerbaijan for its own needs. (Although Russia does buy gas from Central Asian countries it pays below market prices and sells it on to Europe at a profit, but in this case Azerbaijan is being offered a higher than usual price.)
Analysts say the June 29 deal was a largely political one aimed at countering Nabucco by calling into question its supply source. "Moscow calculates that its agreement with Azerbaijan will undermine confidence in Nabucco and delay this project even further," Jamestown Foundation senior fellow Vladimir Socor wrote in the foundation's Eurasia Daily Monitor. Socor argued that the Kremlin and Gazprom were willing to lose money in their bid to damage Nabucco.
State-controlled Gazprom is the world's biggest gas exporter, controlling both reserves and pipelines. It is widely viewed as a tool of Kremlin foreign policy (Medvedev was Gazprom's chairman before being handpicked by then president – now prime minister – Vladimir Putin as his successor last year.)
Azerbaijan's energy minister, who attended the Ankara signing ceremony, said his country was interested in supplying oil and gas in several directions, including to Europe via Nabucco and to Russia, Azerbaijan's APA news agency reported.
Alternative suppliers
Although Azerbaijan is, so far, the most likely supplier for Nabucco, others to have expressed interest include Turkmenistan and Iraq. After vacillating for some time, Turkmenistan's president said last Friday his country was prepared to supply Nabucco. A pipeline along the Caspian Sea floor would link Turkmenistan with Azerbaijan and the route westward.
Iraqi Prime Minister Nouri al-Maliki, who attended Monday's signing, has said Iraq could supply 15 bcm of gas a year. If it comes to fruition, the Iraqi offer – meeting a full one-half of the Nabucco capacity – would be a massive boost for the project. Turkey is keen for Iran to become a supplier too, although the U.S, and E.U, are opposed to Iranian involvement. "We don't believe Iran should be a participant," U.S, special envoy for Eurasian energy Richard Morningstar said in Ankara. "We have reached out to Iran. So far we have not had any positive response."
Morningstar, hinted, however, that future Iranian participation could hinge on its cooperation with the international community over its controversial nuclear program. One of many hurdles delaying Nabucco has been a dispute between Turkey and other stakeholders about transit terms. Turkey wanted access to 15% of the gas flowing through the pipeline for its domestic usage or for re-export, but the government said on Saturday it had dropped the demand.
For Turkey, participation in Nabucco offers not just economic but also potential political benefits. Prime Minister Recep Tayyip Erdogan voiced the hope Monday that its cooperation would help to ease the path towards accession to the E.U. – a longstanding ambition for Turkey.
The Russian option
Meanwhile, Russia has not been having its own way in the pipeline wars. Bulgaria lies along the route of its South Stream project – Moscow's rival to Nabucco – and its new government is showing signs of wanting to apply the brakes.
The Sofia News Agency reported Friday that prime minister-designate Boyko Borisov, whose conservative party decisively won parliamentary elections on July 5, has ordered that all energy project talks initiated under the previous Socialist government, including Bulgarian cooperation in South Stream, should be put on hold pending a review.
Russian media have portrayed the move as a blow to South Stream, although the business daily Kommersant quoted a energy ministry official in Moscow as attributing the move to the "intoxication" of an election victory which would pass quickly. Miller, the Gazprom CEO, has argued that South Stream will supply Europe's gas needs and so make other gas pipelines to Europe unnecessary.
Last year, the Bush administration's point man on Eurasian affairs, Matthew Bryza, argued that supporting South Stream hardly constituted diversification for European countries who currently depend on Gazprom supplies via the trans-Ukraine pipeline. "Diversification does not mean you have two pipelines to the same company that supplies you," he told Hungarian media. "Diversification means you have multiple suppliers who playing against each other can keep the price as competitive as possible."
Bryza also urged Central European governments to speed up work on Nabucco, saying it was crucial that it was completed before South Stream. Otherwise, he warned, the Russian project would "divert attention away from finishing Nabucco."
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