Nabucco survives as EU priority project
Published: 21 March, 2009, 09:43
Edited: 12 November, 2009, 07:50
TAGS: Investment, Russia and the global economy, Gas
The EU Commission has included the Nabucco pipeline in its list of priority projects, which means it will get €200 million from the EU budget to finance the first stage of construction.
Still a priority – the Nabucco pipeline managed to stay on the EU list despite pressure from Germany and Italy. But the EU cut its budget funding of the project by 20%, according to Aleksandr Vondra, the Deputy Prime Minister of the Czech Republic.
“Nabucco is on the list of projects. In fact, it is the first one – under the name Nabucco, and 200 million euros is the amount for that. It concerns particularly Austria, Hungary, Bulgaria, Romania and Germany -all countries involved in the project, because they are involved or one of their companies.”
Nabucco is likely to rely heavily on subsidies from the EU. Several member countries questioned the economics of the project.
The pipeline is due to connect the European Union to gas deposits in Central Asia, through Transcaucasia and Turkey, and may cost up to $10 billion.
For that money, Amy Myers Jaffe, from the James A Baker III Institute for Public Policy, says, it won't add much to the energy security of the European union.
“Natural gas pipeline and electricity connections in Europe are maybe a more effective strategy, and are helping Europe diversify response to its energy security. Maybe some of those options make more sense than the Nabucco pipeline, which is very costly and still very insecure as to where the supply would come.”
The pipeline is supposed to transport around 30 billion cubic meters of gas annually. In terms of gas suppliers the project's backers have named Iran, Iraq, Azerbaijan and Turkmenistan, and this adds to doubts for Kenneth Medlock from the James A Baker III Institute for Public Policy
“I don’t really see any promise for a Nabucco-type project until gas from the Middle East – if it ever actually does come – is able to move from Turkey.”
Gas experts say currently Nabucco may be filled only with Turkmen gas. But this may double the cost of the project. Besides Turkmenistan's gas output is contracted to Russia up until 2028.
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The amount, 200 milion euros, is sufficient only to continue exploratory work, staffing and the expenses of the project staff, and the cost of technical, financial and other feasibility studies. The project itself has been put off for two years. It is clear that there is no reliable, large quanity gas to justify the capacity of Nabucco. The various potential sources accross Middle East are not economically feasible, as the tremendous amount of infrastructure would be required just to get anything to Turkey. And the transit countries would, naturally, ask for guaranteed supply. Even assuming that gas from Turkmenistan can be tapped, the projected cost of $10 billion is very optimistic. Double that amount would make more sense. That does not even include the cost of pipe under Caspian, not to mention the lack of support from littoral states. However, not only is Turkmenistan gas committed to Russia through 2028, the new reserves are committed to China. And it appears that some studies that "found" new reserves in Turkmenistan were probably political, creating impression that, indeed, there is gas in Turkmenistan in spite of previous contracts. Much speculation surrounds Nabucco. EU made a wise choice. It will keep on paying for the on-going cost of studies, thereby not upsetting US and UK partners that still hope to wrestle the gas from Caspian. However, the latest agreements between Turkey, Russia and Italy, point to the more realistic scenario. By moving South Stream into Turkish territorial waters, South Stream may end up emerging in Italy via Greece, and not via a branch from Bulgaria. In fact, delay in Balkans will only speed up South Stream's southern branch to Italy, and --- judging by Putnin's deal with Slovenia and Austria --- possible branch from Italy, accross Slovenia to Austria. This will leave the Balkan route of South Stream open to negotiations with Nabucco under "new management".