Monday, July 13, 2009

European Leaders Sign Pact for Gas Pipeline Nabucco

Project Is Aimed at Reducing Reliance on Russia

Leaders from Austria to Turkey signed a breakthrough political agreement to transit natural gas through their countries in the European Union's planned Nabucco pipeline project aimed at reducing the EU's dependence on Russia.

Diplomats and energy-company officials involved with the project said Monday's agreement, signed in the Turkish capital Ankara, had brought Nabucco out of deep freeze, overcoming a long-running dispute over transit terms through Turkey and showing the political will to build it.

European Commission President Jose Manuel Barroso, right, Turkish Prime Minister Recep Tayyip Erdogan, and Georgia's President Mikheil Saakasvili leave the Nabucco Gas Pipeline signing ceremony in Ankara.

"We have started to confound the skeptics, the unbelievers," said European Commission President José Manuel Barroso. "Now that we have an agreement, I believe that this pipeline is inevitable rather than just probable."

But large question marks remain over where the gas will come from to fill the pipe, energy analysts say. Nabucco is scheduled to start delivering eight billion cubic meters of gas a year in 2014, and a maximum of 31 billion cubic meters, or 5% of EU consumption, thereafter. The pipeline would pass through Turkey, Bulgaria, Romania, Hungary and Austria.

Recent problems including disruptions of Russian gas supplies to the EU via Ukraine and last August's war in Georgia, a key transit country for Caspian oil and gas, have created more political will in the EU to build the pipeline first and then find the gas, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. But it isn't clear how this can be done.

"When will we have contracts that say: Yes, the gas will come from these fields and will go to these buyers and will start on this date?" he said. Without those certainties, financing the project will prove difficult if not impossible, he said.

Russia, which was invited to Monday's ceremony but didn't attend, remains opposed to Nabucco, favoring its own new pipelines. Russian President Dmitry Medvedev on Monday visited the Georgian separatist territory of South Ossetia. The tiny province was the starting point for a massive Russian military intervention last summer that left bomb craters around a major Western oil pipeline that passes through Georgia. President Medvedev's visit came in the wake of huge Russian military maneuvers just north of the Russian-Georgian border this month.

Companies involved in the Nabucco consortium say there has been real progress in financing and developing gas sources over the past year. Earlier this year, the EU committed €200 million ($279 million) in seed money for the €7.9 billion pipeline project. Development banks such as the European Bank for Reconstruction and Development are also getting involved.

"We are intending under the right circumstances to play a senior role," said Riccardo Puliti, EBRD business-group energy director.

Also present at Monday's signing were representatives from Iraq, Syria and Egypt, who said they are willing to supply Nabucco with gas. Azerbaijan and Turkmenistan made similar pledges Friday. "Iraq can provide around 15 billion cubic meters for EU countries via Turkish territory," said Iraq's Prime Minister Nouri al-Maliki, the Associated Press reported.

But Nabucco's consortium has been wrestling with the problem of how to find reliable supplies for the project for years. There is currently no means to deliver gas to Nabucco from Turkmenistan. Iran, a natural supplier, is politically problematic. Egypt has trouble supplying its domestic market.

"I think it will take the best part of 10 years to get pipeline connections and contracts to feed Nabucco," said Mr. Stern.

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