Oil Report

UPDATE 2-EU says backs Austrian exemption on Nabucco

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BRUSSELS, Feb 11 (Reuters) - The European Commission said on Monday it had approved an exemption from strict competition rules for Austria’s section of the Nabucco gas pipeline, to help its preferred project over a Russian-backed rival.

The European Union and Russia are engaged in what some analysts call a “pipeline war” whose outcome could determine Moscow’s degree of control over energy supplies to Europe.

The EU executive temporarily exempted the Austrian section from a requirement to grant access to third parties in return for safeguards to ensure competition on that stretch of the pipeline. Nabucco is due to transport Caspian and Central Asian gas through Turkey to central Europe from 2012.

“The Commission decision on Nabucco shows our support for this project, which will boost Europe’s efforts to diversify our supply sources and our gas supply routes,” Energy Commissioner Andris Piebalgs said in a statement.

“The project is important not only for the countries involved but will also contribute to strengthening competition and promoting security in gas supply for the European Union as a whole,” he added.

Xavier Grunauer, emerging markets analyst at Nomura, said he nevertheless thought Russia’s South Stream pipeline was more likely to proceed than Nabucco.

Russia has the political clout to secure agreement from the countries that would be traversed by South Stream, has the gas to fill the pipeline and is prepared to commit the money needed for its construction, Grunauer said.

“It looks like Russia has an advantage over Nabucco, hands down”.

The EU stressed that the bloc’s legislation permitted exemptions to allow new infrastructure projects “to determine capacity allocation and transport tariffs more freely”.

The EU has been having trouble finding enough gas supply to justify the Nabucco project. Last month Russia won the right to route South Stream through its ally Serbia to Europe in a move analysts described as victory for the Kremlin.

South Stream is a 10 billion euro ($14.65 billion) gas transit project organised jointly by Russian gas export monopoly Gazprom GAZP.MM and Italian energy company Eni ENI.MI to bring Siberian gas to Europe via the Black Sea.

Asked whether similar EU exemptions could be granted to South Stream, a Commission spokesman said applications were examined case-by-case on their merits based on two criteria: improving security of supply and increasing competition.

No application for a derogation for South Stream had been submitted so far, he said. (Additional reporting by Tom Bergin in London) (Reporting by Mark John and Paul Taylor, editing by Anthony Barker)