Nabucco Pipeline Competition for Russian Gas

[aruljothi]

Monday's agreement in Ankara between Turkey and four members of the European Union to construct the Nabucco pipeline for alternative fuel supplies to Europe has raised eyebrows in Russia. The project could force a rival Russian pipeline to compete with Nabucco for gas.

Leading Russian newspapers are calling Monday's deal between Austria, Bulgaria, Hungary, Romania, and Turkey a setback for Moscow's pipeline projects to Europe. The official publication of the Russian government, Rossiyskaya Gazeta, says "experts have long considered Nabucco to be stillborn, but the situation has now changed."

But energy consultant Konstantin Simonov, director of the independent National Energy Security Fund in Moscow, told VOA that Nabucco will not reduce Europe's reliance on Russian gas. The reason, he says, is because the pipeline's capacity will be too low and the continent's own gas production is declining.

Simonov says everyone forgets that Nabucco's annual capacity in 2015 will be 31 billion cubic meters. By then, European gas production relative to today could decline by 67 billion cubic meters. He says this means two Nabuccos would need to be built just to compensate for the loss of Europe's own supplies.

Nonetheless, U.S. Senator Richard Lugar, who represented the United States at the signing ceremony in Ankara, reiterated Washington's position that Nabucco will provide an alternative to Russian gas supplies.

"Now the Russian participation, in this case, comes on a competitive basis. It is not on the basis of any degree of economic or political coercion, threats of cutting off the tap or what have you," he said. "It comes, really, as a business partner."

EU Commission President Jose Manuel Barroso says Nabucco diversifies sources and brings together reliable clients, suppliers and routes.

Russian analysts are quick to point out that Nabucco could be subject to sabotage in Kurdish separatist areas of Turkey, and note the project has yet to sign any supply deals. The analysts also question the reliability of such potential suppliers as Egypt, Iraq and Iran.

Russian Prime Minister Vladimir Putin has said he has nothing against construction of the Nabucco pipeline, but cautioned two months ago against spending billions, as he put it, to bury a pipe in the ground before understanding where gas in that pipe will come from.

The Nabucco project will be competing with Russia's South Stream pipeline, which is to deliver Central Asian gas from Russia under the Black Sea to Europe, circumventing Ukraine. Russia has made generous offers to potential suppliers in the Caspian region in an attempt to corner the gas market. Last month, Moscow agreed to pay Azerbaijan $350 per 1,000 cubic meters in a deal for 500 million cubic meters of gas that analysts say was aimed at heading off the Nabucco project. 

Nabucco's suppliers

But Turkmen President Gurbanguly Berdymukhammedov has indicated willingness to supply the Western pipeline. And another player, China, recently signed a deal with Turkmenistan for annual delivery of 30 billion cubic meters of gas.

Analyst Konstantin Simonov says the Chinese-Turkmen deal has raised concerns in Russia's gas industry over the loss of its gas transit monopoly in Central Asia. But Simonov says this is not necessarily bad, because overall demand is increasing.

Simonov says that even if Russia loses its monopoly, it could be worse for Europe, because where will the gas go? 40 billion cubic meters of gas he says, will go to China, which is 40 billion cubic meters that Europe will not receive. Simonov says Russia will only be threatened if Turkmenistan increases production by a factor of four, which he does not consider likely.

Europe and Russia have been seeking to diversify their pipeline systems partly in response to recent gas transit disputes with Ukraine, which have left consumers in Western Europe without fuel in the dead of winter. But energy analyst Natalia Milchakova at the Otkrytia Investment Bank in Moscow told VOA neither Nabucco nor South Stream is likely to affect the Ukrainian system. Russia currently pumps 20 percent of Europe's supply through Ukraine.

Milchakova says Moscow and Kyiv have not reacted strongly to the news about Nabucco or made any loud statements about Monday's signing.

The signing ceremony was also attended by officials from Azerbaijan, Georgia, Germany, and the Middle East.