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Nabucco Summit Opens Amid Questions Of Funding, Supply

  • Bruce Pannier

Azerbaijan's President Ilham Aliyev (center) at the opening of the Nabucco summit in Budapest

Azerbaijan's President Ilham Aliyev (center) at the opening of the Nabucco summit in Budapest

BUDAPEST -- From the eastern Caspian region through parts of the Middle East and on into the European Union, many people are waiting to see if Europe's flagship natural-gas pipeline project will move from plans on paper toward reality.

The Hungarian government is hosting a one-day international conference on the Nabucco pipeline project, which aims to import gas from the Caspian and Middle East to the heart of Europe.

The conference coincidentally follows a pricing dispute earlier this month between Russia and Ukraine that left gas supplies cut off to large parts of Europe for nearly two weeks.

The EU currently gets about a quarter of its natural gas, and about 40 percent of its imported gas, from Russia, with some countries almost entirely dependent on those supplies. Ukrainian pipelines carry approximately 80 percent of the Russian gas bound for the EU.

The shutoff, which came amid some of the coldest winter weather in years, sent the EU scrambling for alternatives to increasingly unreliable Russian gas and Ukrainian transit lines.

In the process, it boosted the profile of projects like Nabucco -- designed to circumvent both Russia and Ukraine -- just ahead of the conference.

The Nabucco pipeline aims to deliver 31 billion cubic meters (bcm) of gas to Europe annually. That represents less than 10 percent of Europe's needs, but symbolically, it would help to loosen Russia's strengthening grip on European gas imports.

The pipeline would run 3,300 kilometers from eastern Turkey through Bulgaria, Romania, and Hungary, ending in Austria. Initially, supplies are expected to come primarily from Azerbaijan, on the western side of the Caspian Sea.

Turkmenistan and Kazakhstan may eventually join on from the eastern Caspian region, and several Middle East states may eventually become suppliers as well. Nabucco officials have even considered Iran and Russia as potential source countries, despite political concerns.

The project is due to be completed in 2013. To date, however, not a single segment of pipe has been laid. The cost, originally estimated at 4.4 billion euros ($ billion), was recently revised to nearly double that amount.

Securing Funding...

The Budapest conference aims to jump-start the Nabucco process. An impressive list of officials are attending the gathering, including economy ministers from so-called "Nabucco countries" like Austria, Romania, and Germany, Turkish Energy Minister Hilmi Guler, and Bulgarian Prime Minister Sergei Stanishev.

On the supplier side, Azerbaijani President Ilham Aliyev is leading his country's delegation. Delegations from Kazakhstan, Turkmenistan, Iraq, and Egypt are also present, as is a team from transit country Georgia.

Representing the "international stakeholders" are officials like Czech Prime Minister Mirek Topolanek, representing the EU Presidency; European Energy Commissioner Andris Piebalgs; Thomas Mirow, the president of the European Bank for Reconstruction and Development (EBRD); European Investment Bank (EIB) President Philippe Maystadt; and U.S. Deputy Assistant Secretary of State Matthew Bryza. Nabucco is represented by its managing director, Reinhard Mitschek.

Nabucco's projected route
Most participants at the meeting are seeking answers to two questions: Does the project have the money? And does it have the gas?

The presence of top officials from European countries slated to host the pipeline, as well as the EBRD and EIB chiefs, signals that the project may be finding the funding it needs. The Reuters news agency cited the EIB's Maystadt as saying the bank was ready to finance a "substantial share" of the project, but only if the project is viable. "We'll need more information to see if this project would meet the criteria for financing," he said.

The large delegations from the key source countries also suggests that there is interest among potential suppliers. This meeting, it is hoped, will translate that interest into solid commitments.

...And Gas

Azerbaijan has shown increasing interest in Nabucco. But Turkmenistan, which recently confirmed the presence of a mammoth gas field (South Yolotan-Osman), has offered only vague commitments. And Kazakhstan has rarely commented on being in Nabucco at all.

What all three Caspian countries will be looking for are clear signals that construction on Nabucco will start soon and that there is the financial backing needed to see it through to completion. All three can just as easily export their gas through Russian pipelines -- Turkmenistan and Kazakhstan already have such long-term contracts in place.

Until Nabucco can show visible progress on construction, it is unlikely that any of the three would risk damaging their ties with Russia by committing to the European project.

There are other questions as well. If Turkmenistan and Kazakhstan join Nabucco, a trans-Caspian pipeline will have to be added to the equation to bring gas to Azerbaijan and beyond. Russia and Iran, the two Caspian countries not represented at the Nabucco conference, may raise objections that could slow construction of any trans-Caspian line.

There is also the construction of "feeder" pipelines through the Middle East and Iraq's northern mountains to consider if Egypt and Iraq sign on.

And many will be looking to Turkish Energy Minister Guler to clear up remarks by Prime Minister Recep Tayyip Erdogan last week that tied Turkey's participation in Nabucco to Turkish accession to the EU.
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