The construction of the Nabucco pipeline from the Caspian region to Europe has been delayed. Initially proposed in 2002, the construction of the pipeline was tentatively planned for 2009, which would have enabled it to deliver gas to the EU in 2011. However, in May 2011 Reinhard Mitschek, the Nabucco Managing Director, commented “the timing for gas supplies in the Caspian and the Middle East from potential suppliers has changed.” The construction of the Nabucco pipeline is now envisaged to commence sometime in 2013, and the first gas is expected to flow through the pipeline by 2018.
The fact is, despite financial and political support for the pipeline, the Nabucco project lacks firm commitment from potential gas suppliers (listed below), contributing to the delay. There is no solid agreement or any binding document to this date. However, the European consumers have been continuously exploring for ways to diversify their energy sector to eliminate the Russian monopoly over the supply of natural gas.
In early January 2010, Jose Manuel Barroso, the European commission chief, made a visit to Azerbaijan to finalize and secure gas supplies for the European Union. Barroso announced that the president of Azerbaijan Ilham Aliyev has expressed support for the ambitious Nabucco pipeline project which will bypass Russia, and he has agreed to provide substantial long-term gas supplies to Europe.
Meanwhile, Baku, in an agreement signed with Gazprom (Russia’s state monopoly) in October 2009, has been transporting 1 billion cum of gas to Russia annually. Further, Gazprom has continuously announced its willingness to purchase at world prices all gas that Azerbaijan can provide.
Russia has been trying to increase its intake of Azeri gas, interfering with European and U.S. efforts to promote Azerbaijan as a supplier for the Nabucco pipeline project. Moreover, Azerbaijan, in September 2010, agreed to increase the gas delivery to Russia to 2 bcm annually and has promised to augment it further in 2012. In January 2011, Azerbaijan also agreed to a five year contract with Iran to provide at least 1 bcm of gas per year to be used in the northwestern provinces of Iran.
In July 2012, Turkey and Azerbaijan agreed to build the Trans-Anatolian Pipeline, a gas line that would transport Azeri gas through Turkey to Europe via the Nabucco Pipeline. Further, they agreed Turkey would have access to about 10 bcm of this gas per year. The proposed volume of the Nabucco gas pipeline currently stands at 31 bcm per year. The only promised gas for Nabucco is through the Azeri offshore Caspian Shah Deniz II production that is estimated at not more than 8 bcm per year. Therefore, even if Azerbaijan’s gas ends up supplying the Nabucco gas pipeline, there would still be a deficit of 23 bcm of gas per year for the pipeline.
According to the BP report, Turkmenistan would have up to 40 bcm of spare natural gas per year to export to Europe, an attractive plan for the Nabucco project and the European markets. However, when the Russian President Demitry Medvedev made a visit to Ashgabat in late 2009, Turkmen President Gurbanguly Berdymukhamedev agreed to supply Gazprom with 30 bcm of gas annually. Medvedev, in a joint press conference with Berdymukhamedev, announced that for the first time gas purchases from Turkmenistan would be based on a price formula parallel with European gas market conditions. However, this commitment to pay high prices for Turkmen gas has proven to be unprofitable for Gazprom.
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Although Turkmenistan is sitting atop some super giant gas fields, operation of these gas fields for the most part are in the hands of China which has agreed upon a loan value of $8.1 billion to Turkmenistan. In 2010 the Central Asia-China gas pipeline was inaugurated by the Turkmen President and his counterpart Hu Jintao, the Chinese president. This 7,000 km gas pipeline was proposed to carry Turkmen’s Caspian shore gas to Xinjiang in China at an initial rate of 13 bcm per year, potentially rising to 30 bcm by the end of 2011.
In spite of this, Turkmenistan has been trying to diversify exports from its traditional Russian market, advertising on several occasions its capacity to supply at least 40 bcm of gas per year to Europe provided the other countries bordering the Caspian acquiesce to construction of a pipeline under the sea, an idea to which Russia is strongly opposed under the guise of its environmental slogan. Russian Foreign Minister Sergi Lavrov, on August 17, 2011, declared the antagonism of Moscow and Tehran to any external pressures and revealed that both countries had similar positions on the legal status of the Caspian. In addition, Sergei Shmatko, the Russian Energy Minister, has criticized European support for construction of a pipeline under the Caspian as a possible threat to the environment and maritime resources.
Furthermore, in mid November of 2010, the president of Turkmenistan, in an annual address to the Oil and Gas Turkmenistan conference in Ashgabat, touted the Turkmen-initiated gas pipeline (TAPI) project destined for neighboring Afghanistan and India via Pakistan, with additional arteries to the northeastern provinces of Iran.
Kazakhstan has frequently expressed its reluctance to partake in the Nabucco project until the proposed pipeline has been built. Kazakhstan is more interested in constructing a pipeline to transport its oil from the major Kashgan oil field under the Caspian Sea—the so-called “Trans-Caspian-Pipeline”—rather than connecting with the Baku pipeline.
However, at the present time Kazakhstan is still using the Soviet-era “Caspian Central Gas Pipeline” which runs along the Caspian Sea coast of Turkmenistan, traverses northward through Kazakhstan, and finally travels northeast to coalesce with the main trunk of the Central Asia-Center pipeline complex to Russia. The three aforementioned countries agreed in late 2007 to reconstruct the pipeline, a prospect on which no progress has yet been made. This Soviet-era gas pipeline thus remains in a state of severe disrepair and dereliction.
During a Black Sea energy conference in Ankara in October 2010, the US envoy for Europe-Asia energy Richard Morningstar stated that the US and Turkey believe the participation of Iraq in the Nabucco pipeline is integral to the project, and that it is imperative that the gas from Iraq’s Kurdistan ultimately move northward and connect to the southern corridor of transit networks that includes the Nabucco pipeline. The Nabucco consortium is thus planning the engineering work for feeder lines from Georgia and Iraq to connect to the main artery in Turkey.
Interestingly, the natural resources minister of the semi-autonomous Kurdistan in northern Iraq, Ashti Howrami, said at the same energy conference in Turkey that “Northern Iraq has enough natural gas to fill the European Union-backed Nabucco pipeline project.” Of course, the Nabucco Consortium recognizes that Kurdish participation in the project cannot occur without a formal compromise between authorities in Baghdad and the Kurdish local government in Erbil. Baghdad, however, has repeatedly proclaimed that it will not acknowledge energy export deals by Kurdish officials.
Further, it seems that Iraq will be unable to connect to the Nabucco pipeline and supply gas to the European markets until domestic power needs are satisfied. According to Iraqi oil authorities this will not happen until the latter part of the present decade.
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Russia’s Gazprom currently delivers more than 40% of European imports, but Russian authorities have revealed an occasional tendency to use energy as a political tool to achieve certain goals, now even more strongly than during the cold war. The winter spats in the past between Moscow and Kiev are but one example. This kind of behavior has traumatized the European Union to such a degree that they have been conducting a thorough search for alternatives to achieve energy security.
However, Gazprom has been planning the construction of two gas pipelines to deliver gas to European consumers—the Nord Stream, which was inaugurated last October to enable transfer of 27.5 bcm per year of Siberian gas under the Baltic Sea to Germany, as well as the South Stream which is expected to run from Southern Russia to Bulgaria under the Black Sea, ultimately reaching Italy. Undoubtedly, these pipelines will directly compete with the Nabucco line considering their involvement of such major gas-consuming countries in Europe as Germany and Italy. Is Europe hence diversified enough in its interest for the Nabucco gas pipeline? Or has the Kremlin succeeded in using its gas to divide Europe for its own political and economic gain?
Are we witnessing the demise of the Nabucco Project?
Assuming the Nabucco pipeline is established, which of the remaining three Caspian riparian countries of Azerbaijan, Turkmenistan, Kazakhstan—and questionably Iraq—is able and willing to provide Nabucco’s projected 31 bcm of annual capacity? Further, considering ownership of the Caspian is still under debate between the riparian states, the installation of a pipeline is impractical until the seabed is delineated among them.
Since the construction and implementation of the Baku-Tbiliss-Ceyhan (BTC) Oil Pipeline, the intuition of the petroleum industry has been that Iranians should be denied participation in transporting and marketing of energy from this region. Therefore, Iran was excluded from being a transit country for Caspian oil transport to a terminal in the Persian Gulf. Though this route would have been more economical than the present BTC route, Iran was rightfully deprived of this opportunity because of its well-known established support for universal terrorism and its denial of international laws. However, without Iranian gas, the Nabucco project is not viable. It has not yet secured enough gas deliveries and may well be considered defunct without Iran’s contribution. “The Nabucco pipeline is dead,” wrote Alexandros Peterson (OGJ Nov. 7, 2011). On the contrary, as long as Iranian gas is a possibility, there is hope.
A new Iran with plenty of gas to export is only a matter of time
The Nabucco Managing Director once mentioned that although Iran sits on the world’s second largest gas reserves after Russia, Nabucco could only potentially consider Iran as a future source were it politically stable.
Europe is the world’s biggest spender on energy imports. With more than half a billion consumers, the European Union is very attractive and naturally offers a demanding and ever-growing gas market. According to the European Union Commission, the EU’s gas demand will increase about 60% from the current volume of about 500 bcm to 815 bcm by the year 2030. While European gas consumption is constantly increasing, continental production is rapidly depleting. Therefore, alternative gas reserves outside Europe are very dear to the European Union. A free and democratic Iran, with such a huge amount of untapped energy including natural gas reserves, is ideally placed to catch a major piece of the action.
Iranian natural gas is Russia’s only competitor for Europe. Naturally, the Kremlin does not want any other major gas producer to get too intimate with Europe, a situation that would understandably jeopardize European dependence on Russian gas. Russia is therefore hoping that Iran will never become a major gas exporter to Europe. To this end, Russia is manipulating Iran and maintaining friendly ties with the current theocratic and dictatorial regime without regard for the destiny of the freedom-loving Iranian people. A free Iran will remember the duplicitous behavior of those few countries that shut their eyes to the bleak reality of today’s Iran and endorsed the present oppressive regime for their own ulterior motives.
Certainly, a liberated Iran will gladly and fairly deal with the free world. Presently, the free world has initiated support for the struggle of Iranian people to achieve democracy and freedom. Unquestionably then, the free world shall participate in the development of Iran’s immense, untapped gas fields which comprise over 18% of total world gas and will be essential for making the Nabucco project a reality.
By. Mansour Kashfi
Mansour Kashfi, PhD, is president of Kashex International Petroleum Consulting and is a college professor in Dallas,Texas. He is also author of more than 100 articles and books about petroleum geology worldwide. email@example.com