July 9, 2009 / 11:08 AM / 10 years ago

PREVIEW-Nabucco transit deal nice, but where's the gas?

* Intergovernment signing on Monday July 13

* Ankara agreement will not solve Nabucco supply issue

* South Stream edges ahead but rivalry complex

* Nabucco financing better in the long run

* here

By Sylvia Westall and Orhan Coskun

VIENNA/ANKARA, July 9 (Reuters) - A transit deal for the Nabucco gas pipeline will bring political fanfare at its signing next week but critical supply and financing questions may thwart progress as a rival Russian plan edges ahead.

The Vienna-based Nabucco consortium aims to reduce Europe’s energy dependence on Russia by transporting gas from the Caspian and Middle East through the planned pipeline from 2014.

Some analysts say Nabucco has better prospects than Russia’s South Stream pipeline in the long run but that the consortium, hampered by competing interests of its member companies in six states, lacks assurances and momentum to get suppliers on board.

“The major obstacles to Nabucco still stand and supply is number one,” said analyst Ana Jelenkovic at Eurasia Group.

“Without securing the supplies you can’t have the pipeline but without the pipeline you can’t secure the supplies. They don’t actually have anything (on supply) signed.”

Transit countries Turkey, Bulgaria, Romania, Hungary and Austria will sign an accord on July 13 in Ankara. While it may help financing and reassure supplier countries, it will not be a big leap forward for a project already subject to delays.

A final financing decision for the pipeline, due next year, will be a solid step but this also depends on the supply issue.

Nabucco wants to pump 31 billion cubic metres of gas to Europe annually to meet some 5 percent of gas needs. It could ship gas from Iraq, Egypt, Iran, Azerbaijan and possibly Russia and Turkmenistan.

Iraq’s Kurdistan in May heralded a plan to export gas from the semi-autonomous region through Nabucco but the central government rejected the scheme. [ID:nLI484521]

South Stream project moved forward earlier this month when Azerbaijan promised Russia’s Gazprom (GAZP.MM) priority in buying gas from the second phase of the major Shakh Deniz project.

Gazprom’s more practical strategy — signing basic cooperation agreements with supplier countries — gives its pipeline a competitive edge by building relationships between companies, Jelenkovic said.

“They are not an intergovernmental agreement but they are strong political steps towards building a pipeline,” she said.

She added that while the 2006 gas dispute between Russia and Ukraine led to a big push for diversification, some countries in southeast Europe were more cautious after a similar row this year, especially the ones heavily reliant on Moscow for gas.

“It is unrealistic for these countries to say they are going to be able to be independent from Russian gas, with or without Nabucco ... (Energy security) is more important for them.”


Turkey, important for both projects and with few hydrocarbon resources of its own, is keeping its options open. It has already held up progress on Nabucco by demanding 15 percent of the pipeline’s capacity for domestic usage or re-export.

“Right now we are working on Nabucco, but will also evaluate South Stream with the Russians,” a Turkish government source said.

“The important thing is ensuring supply for Turkey,” another Turkish government source said. “This is why we don’t see South Stream and Nabucco as rivals.”

Romania has also signalled it has horizons beyond Nabucco, saying in May that it will consider other projects if talks do not push forward. Russia has said it is close to signing up Austria and Russia for South Stream.

Analysts say that although the projects encourage competitive posturing from the companies and countries, they are not necessarily fighting over supplies and have different aims.

“In a sense it is competing if you want to avoid Russia...but the major objective for Russia is not to compete with Nabucco but to get gas out of the Ukrainian pipeline system and to put it into South Stream,” said Susanne Nies at France’s IFRI think tank.

But analysts do not see both succeeding in their current form. “The market would not support more than one pipeline,” said Mikhail Korchemkin from East European Gas Analysis.


Nabucco has to deal with a range of countries unable to put their own interests aside in order to push the pipeline forward, giving state-controlled giant Gazprom another advantage.

But while Nabucco’s problems are considerable, including how it would transport gas across the Caspian Sea, analysts say Gazprom may have problems affording South Stream.

“Gazprom and the countries in the project can move faster than a commercial project. But a money-losing project cannot run forever,” Korchemkin said.

Nabucco is expected to cost 7.9 billion euros ($11.04 billion) and with its Europe-wide backing should find it easier to secure funding in the long run, analysts said.

Gazprom is Russia’s most indebted company with debt of over $40 billion, excluding its former banking arm, Gazprombank. It wants to invest 10 billion euros in South Stream but lower energy prices and depressed exports have made business tough.

For several of the countries eyeing both projects, Nabucco will also bring more benefits, Korchemkin said.

“Turkey is unable to get gas from South Stream, so it will benefit from Nabucco much more than from any other project.”

The attraction of Nabucco is also stronger for some supplier countries, he said. “It is very clear that Nabucco will open the whole of Europe for Turkmenistan,” he said. “It is very important to step towards Turkmenistan.”

For a Q+A on the signing double click on [ID:nL9513817]

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below