Gas dispute may spur plans for Balkan pipeline

BUDAPEST, Jan 25 (Reuters) - The gas dispute between Russia and Ukraine has given fresh impetus to plans to build a pipeline through Turkey and the Balkans, bringing Central Asian gas to Western Europe.

At the instigation of Hungary, European Union and Central Asian officials meet in Budapest on Tuesday to try to breathe new life into the 10-billion-euro ($12.96 billion) Nabucco scheme and reduce Europe’s dependence on Russian gas.

“There isn’t a PR campaign in the world that could have given the Nabucco as much attention as the Russian-Ukrainian dispute did,” Hungarian government spokeswoman Bernadett Budai, said. “This is the best opportunity in years to make progress.”

The contract row between Moscow and Kiev led to a cut-off of supplies of Russian gas affecting millions of people in central Europe in early January.

The Nabucco plan envisages piping gas 3,300 km (2,000 mile) from the Caspian region through Turkey, Bulgaria, Romania and Hungary to a distribution hub in Austria. Nabucco aims to meet 5 percent of Europe’s gas needs.

Progress has been slow and insiders say any one of a series of obstacles could sink the project. Expectations are not high for Tuesday’s talks, which will be attended by consortium members Austria, Bulgaria, Germany, Hungary, Romania and Turkey.

Also present will be Czech Prime Minister Mirek Topolanek, representing the EU presidency, as well as EU Energy Commissioner Andris Piebalgs, government representatives from Azerbaijan and Iraq and corporate officials from Turkmenistan.

High on the list of difficulties are securing enough gas supplies and a dispute with Turkey over a demand by Ankara to keep a net 15 percent of the gas that would flow through the pipeline.

Turkey’s five partners want it to serve as a transit country that would not use any of the annual 30 billion cubic metres of gas the pipeline will eventually carry.

A Turkish energy official said last week Ankara expected to settle this, and other outstanding issues, in Budapest this week.

Turkey has also linked its support for Nabucco to its accession talks with the European Union.

During a visit to Brussels last week, Prime Minister Tayyip Erdogan threatened to reconsider support for Nabucco in response to a Cypriot veto over energy-related aspects of the accession talks. A few hours later, however, he said he would never use Nabucco as a weapon.

These disagreements with Turkey have hampered progress on a deal that would set out the long-term rules for the pipeline.


However, Nabucco’s inability to secure enough sources of gas has been the biggest threat and critics say only Russia, which is planning its own rival scheme known as South Stream, has the gas and infrastructure to supply the pipeline.

Russian officials have expressed scepticism about its eventual success.

“Nabucco could be a monument to great ambitions and actions not thought through properly,” Viktor Zubkov, Russia’s first deputy prime minister and Gazprom’s chairman said when asked in Budapest at the weekend if Nabucco could survive without Russian gas.

Without gas supplies and no deal between member governments, the pipeline’s financing is still in doubt.

Banks are unwilling to come up with cash until an inter-governmental agreement is signed, long-term conditions are established and supplies are secured.

However, potential suppliers, such as Turkmenistan, Azerbaijan and Kazakhstan are reluctant to sign up until financing is in place and the pipeline has been built.

Iran, which has indicated its willingness to provide gas, is diplomatically not acceptable while Iraq’s infrastructure is far from adequate, experts say.

Nabucco’s shareholders -- who include Austria’s OMV, MOL of Hungary, Romania’s Transgaz, Bulgargaz, Turkey’s Botas and RWE of Germany -- have said the EU should provide guarantees or prefinancing to persuade suppliers and banks that Nabucco is viable. (Reporting by Balazs Koranyi; editing by Andrew Dobbie)