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EU Fights For Nabucco's Future

Andris Piebalgs heads to Istanbul and Baku to make his case.
BRUSSELS -- The fate of the Nabucco pipeline project appears to be hanging by a thread. No EU official would publicly admit this, but the signs tell their own story.

First, as a senior EU official told reporters in Brussels on November 4 on condition of anonymity, transit talks with Turkey have stalled.

Second, Azerbaijan is dithering between competing Russian and EU bids for its gas exports, which are crucial to bringing Nabucco on line in 2012 as planned.

Third, in the long term, Azerbaijani gas alone will not be sufficient. The EU official said that "other countries in the region" must supply most of the 31 billion cubic meters (bcm) of gas Nabucco is expected to carry by 2020.

But Iran, with the world's second-largest reserves, remains off-limits as long as it continues to enrich uranium. And Turkmenistan, with its enormous export potential, has yet to decide whether to invest in a trans-Caspian pipeline linking it to Azerbaijan -- and Nabucco.

The common thread for all these countries, and the EU as the ultimate beneficiary of the 3,300-kilometer-long pipeline, is the question of intent and commitment.

EU Makes Its Case

On November 5-7, EU Energy Commissioner Andris Piebalgs will visit Turkey and Azerbaijan to demonstrate the bloc's continued commitment to Nabucco.

"The first objective of this trip is to show the political commitment of the European Commission to the Nabucco project and to reaffirm once more that we are convinced that it is going to be online according to the planned timetable," says Piebalgs' spokesman, Ferran Tarradellas.

The Russian-Georgian conflict sent shock waves through the region and among potential investors. But official Brussels remains steadfast in the belief that Nabucco is safe from Moscow's interference. "Russia would jeopardize its reputation as a reliable supplier" to the EU if it acted in any way to damage Nabucco, said one official.

However, none of Nabucco's essential building blocks is currently in place. Turkey continues to hold out for a better transit deal while Azerbaijan has yet to formally commit its gas exports to the project.

Tarradellas says that while Piebalgs' visit is a sign that the EU is upping the ante in its talks with the two countries. "We're going to discuss also the remaining differences with the Turks and the question of the transit of the gas through Turkey," he says, "and then we're going to be visiting Azerbaijan, which will be probably be the first supplier of gas for the Nabucco pipeline."

The senior EU official who spoke on condition of anonymity said that, apart from charging a transit fee, Turkey wants to divert 15 percent of Nabucco's gas for cheap domestic use. As Azerbaijan is insisting on selling its gas at European market rates minus transit costs, the Nabucco consortium and its subsidiaries in Turkey, Bulgaria, Romania, Hungary, and Austria would be left to pick up the tab.

Piebalgs is keen to break the deadlock before the end of the year. In Turkey this week he will meet with the country's president, prime minister, foreign minister, and economy minister.

Where Will Gas Come From?

Azerbaijan, meanwhile, has yet to decide to whom to sell the estimated 7-9 bcm of gas it is able to export annually in the early years of Nabucco's operations. The senior Brussels official said EU companies are pitted against Russian competitors. There are fears in the EU that Russian political pressure could clinch the deal for Russian bidders. A decision is expected sometime in 2009.

EU officials say that the fact that Piebalgs has secured a meeting with Azerbaijani President Ilham Aliyev is a sign of "interest" on the part of Baku in doing business with the EU.

But Azerbaijan's gas reserves, even if supplemented by the planned expansion of the Shah Deniz field, will not be sufficient to keep Nabucco in business.

And this is where Nabucco currently hits a wall. Iran will remain untouchable in trade terms as long as it refuses to cease uranium enrichment. Like Azerbaijan, Turkmenistan and Kazakhstan can be swayed by Moscow's cash -- or outright pressure. And even if Turkmenistan's recently confirmed reserves of 14 trillion bcm dwarf Russia's own transit capacity, Moscow will be seeking to deny the EU a piece of the pie.

Piebalgs is hoping to soon visit Turkmenistan and Kazakhstan, his aides say.

This leaves Iraq and Egypt as the only other viable regional suppliers for Nabucco -- with one extremely unstable and the other rather remote.

Meanwhile, EU officials reject suggestions Nabucco could eventually carry Russian gas diverted south. This, they say, would defeat the purpose of Nabucco -- which is to diversify supplies. (Competing Russian projects, such as South Stream, are not seen as a problem, however. The EU's growing demand for gas will make sure it has a market and the diversification of transport routes is a good in itself).

If the degree of insecurity associated with the 8 billion-euro ($10.3 billion) project coupled with the global financial crisis is making potential investors nervous, officials in Brussels remain serene. When pressed, they do point out, however, that should private investors balk, public lenders such as the European Investment Bank and the World Bank stand ready to step in.