Energy: Nabucco’s comeback edit

Since its launching in 2002, the Nabucco pipeline project has had several lives. Many times it was given as death, but it finally managed to rise from its own ashes. Even though the Russian-Ukrainian gas crisis in 2006 transformed Nabucco into a top priority European project, in the last few years it advanced a little but backed up a lot, resulting in barely concealed mockery. This pattern is true and depicts Nabucco’s situation before the economic crisis. The latter, with its negative effects, brought a breath of fresh air for the European project and its proponents have used it rather wisely. The latest developments in Azerbaijan and Turkmenistan are encouraging with regard to the equation of supply sources. It seems that Nabucco is back.

Companies have initially designed Nabucco in an economic perspective, as the answer to the growing gas demand on the European market at the horizon of 2020. OMW and its partners agreed in 2002 to create a new gas infrastructure bringing Iranian gas to Europe. The Russian-Ukrainian gas crisis raised it on the top of European agenda at the price of a change in purpose, as the project slips into a geo-economic logic. Nabucco 2006 has little to do with Nabucco 2002, as the EU and the United States did not favour the Iranian project, which had to be abandoned. Nabucco’s developers had to go back to the drawing board to look for alternative sources of supply and ensure the economic competitiveness to investors. Aware of the political turn of the project, the European Commission has sought to depoliticize the project by including it in the Southern Corridor with the Interconnector Turkey-Greece-Italy (ITGI), the White Stream and the Trans-Adriatic Pipeline (TAP).

Despite a strong European support, Nabucco remains a pipedream because of the lack of supply sources. Even though the signature of the Intergovernmental agreement in 2009 and the article 36 exemption concerning third party access to the network were positive for the project, they were not sufficient to convince the market of its economic feasibility. For the project to happen, it was vital that Azerbaijan and Turkmenistan send positive signals about their willingness to supply gas to Nabucco.

At the beginning of January 2011 these two countries received for the first time the official visit of the Commission President José Manuel Barroso accompanied by Commissioner for Energy Günther Oettinger. The agreement signed in Baku by Mr. Aliyev and Mr. Barroso urges Baku to supply gas to the European Union "in the long term." It is a great step forward for Nabucco, because Azerbaijan is of particular importance in the feasibility of the project and especially for the first operational phase of the project. For his part, Turkmen President Gurbanguly Berdymukhamedov held a similar speech, promising to send gas capacity to the EU and stressing his support for building a Trans-Caspian pipeline. However, no agreement has been signed between the two Presidents.

This resurgence of Nabucco occurs at a time when South Stream is crossing troubled waters. The Russian-Italian project has made significant progress in its inception in 2006, but since the crisis, its financial feasibility is questionable. Moreover, the project suffers from governance problems between Gazprom and ENI related to the input of EDF as a third partner in the offshore part. Also, doubts have settled on Russia’s ability to supply 63 billion m3 of gas, given the under-investment in the development of new internal gas capacities in Russia and the strained relations with Turkmenistan.

Nabucco is back in force thanks to the sustained political effort of the Commission. Nevertheless, its horizon is still plenty of uncertainties. The agreement with Azerbaijan is vague: no date and no amount of gas are specified in the text. President Aliyev has committed to provide enough gas to the Southern Corridor, stating that his country has reserves amounting to 2,200 billion cubic cubes. However, the President is not the only decision-maker, as private companies such as Statoil, Total and ENI exploit the Shah Deniz field together with the Azeri State. In addition, Mr. Aliyev emphasized the Southern Corridor, while Mr. Barroso focused on Nabucco. It is true that there is competition even within the Southern Corridor for the 10 billion cubic meters of Azeri gas available in the short term. This competition is fierce and aims Nabucco and ITGI. For now, President Aliyev has merely stated that his country will announce in the coming months the project(s) supported by his country.

President Berdymukhamedov’s comments are even more difficult to assess, given their vague content and his reputation. According to U.S. diplomatic telegrams from 2009 which were revealed by Wikileaks, the latter could be a good actor and a habitual liar. Furthermore, the sincerity of his promises is questionable as Turkmenistan increases the gas agreements with EU’s competitors: China and India. For his part, Mr. Barroso reiterated EU’s support for Turkmenistan’s candidacy to the WTO.

More than ever, the Nabucco project seems to have solved the equation of its gas supplies. In the game that pitted him against South Stream, the first roll wins the game. Given the recent positive developments, Nabucco has all the chances to win, because it has a head start on the regulatory and legal fields on South Stream.