Fresh Hopes for Nabucco Pipeline following Total’s Natural Gas Discovery

Since 1991, the great Western success story in unlocking the energy riches of the former USSR has been Azerbaijan. Western energy companies have had no greater friend in the post-Soviet space, as epitomized by the Baku-Tbilis-Ceyhan (BTC) $3.6 billion, 1,092-mile pipeline, which began operations in May 2005 and now supplies a million barrels per day to thirsty Western consumers.

A recent discovery by French company Total may soon allow another project, previously relegated to the sphere of necromancy, the Nabucco natural gas pipeline, to become a reality.

In September 1994 Azeri President Heydar Aliyev signed a $7.4 billion "deal of the century with 11 Western oil companies to develop Chirag and the offshore sections of the Guneshli oil fields. The agreement was bitterly objected to by Russia, but Aliyev showed his political skills when he agreed to use Russia's Transneft pipeline network to ship Azeri “early crude” to Russia's Novorossisk port on the Black Sea, mollifying the Kremlin with transit revenues.

Most extraordinary about Aliyev’s capitalist vision was the fact Aliyev's star began to rise when he became a protégé of Soviet Communist Party General Secretary Leonid Brezhnev. Aliyev rose through the ranks of the KGB in the 1940s and 1950s under dictator Joseph Stalin, becoming Azerbaijan's KGB boss in 1967; two years later became Azerbaijan's Communist Party leader. In 1972 Aliyev became a full member of the Soviet Politburo, but Soviet President Mikhail Gorbachev ousted him in 1987 on allegations of cronyism, nepotism and corruption, rusticating him to his home region of Nakhichevan. A measure of the respect in which his country held him, when Aliyev died in December 2003 (in a cardiac clinic in Cleveland) was evident in his funeral service, when more than a million people, one eighth of the republic's population, lined the streets of the capital Baku to honor his cortege.

Azerbaijan has since attempted to walk a convoluted path between the complex Caucasian political scene involving Russia, Georgia and Iran and has been largely successful.

From the outset Azerbaijan has been a firm supporter of the 56-inch, 2,050-mile Nabucco pipeline, first proposed in 2002. At a cost initially estimated at $11.4 billion and rising, Nabucco will be the most expensive pipeline ever built, more than three times the cost of the BTC oil pipeline.

Nabucco’s major stumbling block up to now has been not financing, but where its throughput would come from. Up to now, the only source of Nabucco's proposed 31 billion cubic meters (bcm) annual throughput was Azerbaijan's future offshore Caspian Shah Deniz production, estimated at 8 bcm. Chances of adding to the volume from Iran, given sanctions, were slim to none, while the Chinese have essentially stitched up future Turkmen production, leaving Nabucco an underused energy highway.

Until possibly now.

Last week French oil giant Total said that it had found a major gas field in the Caspian off the Azeri coast.

Total’s senior vice president for exploration Marc Blaizot modestly said, “This discovery could be very significant in terms of resources.”

Total’s Absheron X-2 block, less than 20 miles from Shah Deniz, is thought to have large pockets of gas spread over a 100 square mile field, and the company is hopeful to find several trillion cubic feet of gas and associated condensates.

Total has been present in Azerbaijan since 1996.

Several trillion cubic feet of natural gas?

If Total can exploit the find, then Nabucco could be a possibility on the basis of Azeri Caspian natural gas alone. One should not write off Total’s capacities, as Total holds a 10 percent interest in South Caucasus Pipeline Company, the firm that owns the South Caucasus Pipeline, which transports natural gas from Shah Deniz to the Turkish and Georgian markets. Total also retains five percent of BTC Co., the owner of the BTC pipeline.

Azeri President Ilham Aliyev, son of Heydar, modestly said that the Total natural gas find was a “major event” that underscored Azerbaijan’s long-term prospects as a global energy supplier, adding, “This will allow us to press ahead more confidently with our gas strategy and strengthen the position of our country as a world gas exporter.”

Resource, financing, a friendly host government – Nabucco may have finally found something to ship, instead of remaining a Western energy company “pipe dream.”

By. John C.K. Daly of OilPrice.com