Originally published on 2012/02/09

The bad news came just before the clos­ure of the Octo­ber 1 dead­line and might have been the final lethal blow for the European Nabucco Pipeline pro­ject. UK oil and gas giant Bey­ond Petroleum’s (formerly Brit­ish Pet­ro­leum, short BP) pro­posal of the South-East European Pipeline (SEEP) might eas­ily rival and replace Nabucco as the most suit­able option to bring Caspian gas to Europe. Even though some of Europe’s strongest energy com­pan­ies stand behind Nabucco: Austria’s OMV, Hungary’s MOL, Turkey’s BOTAS and Germany’s RWE; it has always had a bit of a slow start in com­par­ison to its com­pet­it­ors in the Caspian Sea region. Other pro­jects, such as ITGI, TAP or the Rus­sian South Stream have always seemed some­how more suit­able, either because they were endorsed by a share­holder of the Shah Deniz field, such as TAP by Statoil, were smal­ler and thus more adjus­ted to the gas avail­able in the second devel­op­ment stage of Shah Deniz (ITGI and TAP should each carry 10bcm com­pared to Nabucco’s 31bcm) or had the fin­an­cial back­ing (South Stream will be build by Gazprom and Italy’s Eni). How­ever, most import­antly, Nabucco’s single biggest fail­ure was long con­sidered a smart move: it had failed to secure gas before its con­struc­tion and now struggles to find enough gas to jus­tify its construction.

SEEP has one major advant­age over Nabucco – BP is one of the stake­hold­ers of the Shah Deniz field (together with Statoil and a few oth­ers) and will thus be in a pos­i­tion to shift the vote in favour of SEEP instead of Nabucco. It can to some extent be con­sidered to be a bas­tard­ized ver­sion of Nabucco. It looks like Nabucco was fleshed out and adjus­ted to the real­it­ies – its capa­city of 10bcm would match the addi­tional gas out­put of Shah Deniz II post-2017, and unlike Nabucco, and in line with ITGI and TAP, it will rely on BOTAS pipeline net­work to trans­fer gas through Tur­key. This will greatly reduce costs and should ensure the pro­jects financing.

How­ever, there are a num­ber of prob­lems that need to be addressed. First of all, SEEP can hardly be called a proper pro­ject so far, as it is hardly more than a con­cep­tual pro­posal with little more than cost estim­ates and an altern­at­ive route to trans­fer Azeri gas. Though it will be cheaper than Nabucco, the reli­ance on the Turk­ish pipeline net­work and parts of Hungary’s and Bulgaria’s net­work, could prove a poten­tial prob­lem, espe­cially as all net­works require mod­ern­isa­tion to meet future gas trans­port require­ments. Finally, the capa­city of 10bcm will hardly be enough to reduce the regions depend­ence on Rus­sian gas deliv­er­ies, and unless SEEP will be scal­able, it will remain one of many pipeline pro­jects neces­sary to increase the energy secur­ity of the region. This could, almost iron­ic­ally, mean that Nabucco could even­tu­ally be build after all.

Should Brus­sels attempt a counterattack?

As men­tioned above, Nabucco has been slow to take off and now SEEP might have dug the grave for the EU pro­ject, but Nabucco might still pre­vail if the EU finally takes a stance and backs the pro­ject prop­erly. There is no doubt that Nabucco is too big for the 10bcm of Shah Deniz alone but there are other sources for nat­ural gas – Iraq amongst oth­ers – and more import­antly Turk­menistan and one day Iran. The coun­try is will­ing to diver­sify its energy exports – cur­rently Rus­sia and China are the only des­tin­a­tions for Turk­men gas – and the European mar­ket, espe­cially in light of the “green­ing” of its eco­nom­ies, might be the ideal mar­ket. How­ever, the Turk­men gov­ern­ment is unwill­ingly to invest in the Trans-Caspian pipeline unless it can be sure that Europe is going to import a large quant­ity of nat­ural gas. Other coun­tries, such as Kaza­kh­stan or Uzbek­istan might sign up to the pro­posal once their gov­ern­ments are con­vinced that Europe is determ­ined to invest in a pro­ject that is in line with their Big Gas strategy.

Nabucco was recently estim­ated to cost some­where between €14-20bn, a cost that many deem too high and uneco­nom­ical. Com­pared to South Stream it will still be cheaper and will reduce the EU’s depend­ence on Rus­sian gas. Fur­ther­more, it might bring about closer rela­tions between the EU and nat­ural gas sup­pli­ers such as Iraq, Turk­menistan or even Iran. Pro­ponents of Nabucco will claim that Turk­men or Iraqi gas is cleaner than any nat­ural gas extrac­ted from Pol­ish or French shale. Fur­ther­more, if Nabucco fails, the EU will suf­fer a humi­li­at­ing defeat vis-á-vis Rus­sia over its energy secur­ity, as Nabucco was more than just a pro­ject but first and fore­most a sym­bol of European determ­in­a­tion to rid itself off Russia’s energy power grip.

In times of eco­nomic tur­moil it might seem like a mad idea but if the EU is ser­i­ous about redu­cing its green­house gas emis­sions, then Nabucco should be build, how­ever, only after the con­sor­tium secured access to Turk­men (and pos­sibly Iraqi) gas. The con­sor­tium should thus primar­ily focus on Turkmenistan’s gas reserves as Azerbaijan’s gas reserves might be enough for the begin­ning but will not be enough to fully fill Nabucco. This solu­tion might require large invest­ments but might be the only answer to Russia’s energy pin­cer (Nord Stream and its souther ‘sis­ter’ South Stream).

The green energy revolu­tion in the EU might be tak­ing place but it will take many years before renew­ables will be able to provide enough energy to sub­stan­tially lower Europe’s hun­ger for gas. In the struggle for Caspian gas size might thus actu­ally mat­ter if Nabucco can be slightly adjus­ted to con­vince the lit­toral states of the Caspian to con­trib­ute to it. One thing is sure though, Europe needs to get a foothold in the Caspian region, oth­er­wise its energy secur­ity will remain in the hands of external forces for dec­ades to come.

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