European investors, ever eager to embrace massive and profitable energy projects, in the last several years have dreamed of somehow persuading Turkmenistan to divert volumes of its ever increasing natural gas production to fulfill one of Europe's most cherished reveries, the Nabucco pipeline.
Quite aside from the billions in profits that Nabucco would generate, it would have the added political advantage of assisting one of Europe's most cherished ambitions, lessening its energy dependency on Russia, as state owned Gazprom now supplies 40 percent of Europe's natural gas imports. Worse, the EU's European Commission projects that the EU's overall gas consumption will increase by as much as 61 percent from its current level of 502 billion cubic meters (bcm) to 815 bcm by 2030.
A quick note to investors - forget about it, as Russian Federation President Dmitrii Medvedev has just effectively killed Turkmen participation in the pipeline, no matter how eager investors are to throw cash at 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.
And just how did Medvedev drive a stake through Turkmen participation in Nabucco?
Simple - on 14 October Medvedev insisted that all five Caspian nations would have to assent to building the undersea pipeline, which would transit from Turkmenistan's eastern Caspian shore to Azerbaijan's capital Baku, where the Turkmen gas would be added to Azeri production from its offshore Caspian Shah Deniz field before being dispatched westwards through Turkey, Bulgaria, Romania and Hungary into Austria and western Europe. Medvedev said, "This (the Caspian undersea pipeline) is a rather difficult question, which, of course, directly depends on the status of the Caspian Sea as an inland sea and requires that all the countries which participate in the Caspian summit agree their positions."
Ever helpful, the Russian Federation's Foreign Affairs Ministry added that, under a 2007 politically binding joint declaration of the heads of five Caspian states, only littoral countries could resolve important questions regarding the Caspian.
Medvedev's declaration follows the EU opening talks last month in the Turkmen capital Ashgabad aimed at negotiating a treaty to begin construction of the pipeline.
What is more than a touch cynical about Medvedev's pronouncement is that it is Russian intransigence that has held up a final division of the Capsian's offshore waters and seabed for the last two decades. Simply put, Moscow wants apportionment on the basis of coastline, while Iran has held out for an equitable 20 percent share for each of the five nations. So, in effect, Medvedev's pronouncement has magically transmogrified Russian obstinacy into a concern for Russia's Caspian neighbors.
Nabucco's Achilles heel up to now has been scrounging the necessary throughput, as currently its sole promised volume its proposed 31 bcm annual capacity is Azerbaijan's future offshore Caspian Shah Deniz production, estimated at 8 bcm. Even if Shah Deniz does end up supplying Nabucco, its currently promised throughput leaves a deficit of 23 bcm, which Nabucco boosters clearly hoped would be made up by Turkmenistan.
But not to worry - Russia has a project to ameliorate the Turkmen shortfall, its South Stream project, intended to deliver 63 bcm of Central Asian and Russian natural gas to Europe annually under the Black Sea.
Without Turkmen natural gas, there still exists one possible final option Nabucco, as last month French oil giant Total said that it had found major gas reserves in its 100 square mile Caspian Absheron X-2 block field, less than 20 miles from Shah Deniz. Total has been present in Azerbaijan since 1996. Total's senior vice president for exploration Marc Blaizot modestly said, "This discovery could be very significant in terms of resources," noting that Total is hopeful of finding up to several trillion cubic feet of natural gas and associated condensates.
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.
The only clear effect of Medvedev's pronouncement is that Turkmen gas will not be coming westwards anytime soon and in the interim, Europeans are going to have to write out yet more checks to Moscow. As for Nabucco investors and boosters, for the moment, your check is not in the mail anytime soon.
By. Dr. John C.K. Daly of Oilprice.com