Diversifying Caspian Gas

by Joshua Foust on 11/26/2007

The EU seems adamant on diversifying export routes for Caspian natural gas.

After a meeting with Piebalgs, the EU-appointed coordinator for the Nabucco gas pipeline from Turkey to Austria, Jozias van Aartsen, said he believes the project is feasible. He said all EU countries whose territories it crosses are resolved to proceed with Nabucco.

“What I’ve [achieved] in the past two months is that all the four countries in the EU side — Austria, Hungary, Bulgaria, and Romania — are glued to the project again, are really involved again, and do see the project as a priority for their countries,” van Aartsen said.

Van Aartsen said the two main hurdles remaining are funds and the EU’s own bureaucracy.

Thus, the European Commission must rule whether to exempt the Nabucco consortium from EU rules that require all infrastructure to be freely accessible to all companies active in the field. Investors in Nabucco say an exemption is necessary to make the project attractive for investors. The ruling is due in January 2008.

Nabucco

Of course, Russia would never allow itself to be sidelined like that.

Eni SpA (NYSE:E) said it sees the first delivery of gas from the South Stream pipeline it is developing with Gazprom in 2013.

Eni and Gazprom signed an agreement yesterday to set up a joint company to carry out the feasibility study for the construction of the pipeline that will transport Russian gas to the European Union across the Black Sea.

The dedicated joint company will be set up before Jan 15, while marketing analysis and feasibility studies will be completed by the end of 2008, Eni said.

Reports have said the project could cost 10 bln eur but Eni CEO Paolo Scaroni said it will certainly cost more.

‘I believe the new pipeline system, which complies with the strictest technological and environmental criteria, will significantly improve the security of supply for the whole of Europe,’ Scaroni said.

Yes, Europe is clearly well-served by investing more billions of Euros into locking in Russian control of its gas.

South Stream

What I don’t understand is why Eni feels the need to build this pipe if Nabucco is such a wonderful prospect. I can, however, think of several possible reasons:

  • Russia. Since the TransCaspian pipeline faces an enormous number of barriers for construction, Eni needs good relations with Gazprom to ensure it will be able to export from Kashagan (assuming it retains control of the field, which is iffy).
  • The Bosporus. The recent oil spill in the Black Sea makes Turkey’s concern over energy transiting the Bosporus real. While a pipeline is certainly far less risky than a tanker, pipelines can be cut—and Ankara might shy at the prospect of giving its many discontents the chance to foul Istanbul.
  • Turkey’s Ascension. Turkey has had a rocky relationship with the EU over the prospect of its ascension. Accusations of racism, Christian chauvinism, and many other isms have been flung about; Turkey, for its part, would need to relax speech codes, the Kurdish oppression, and renounce torture… and maybe stop illegally occupying Cyprus. South Stream avoids Turkish soil and thus Turkish issues, Nabucco does not.
  • Ownership. Eni has no stake in Nabucco (it is an equal consortium of Bulgarian, Austrian, Turkish, Hungarian, and Romanian companies), and wants to own the pipe that will likely carry its hard-won Caspian bounty. Similarly, it is likely Gazprom demanded its own pipe in return for Eni being blessed with transit rights through Russian territory.
  • Length. This is probably one of the primary reasons for South Stream. The entire length of a pipeline is essentially deadweight—once it is filled to pressure, however much gas is in the pipe itself is basically lost (i.e. it takes so many thousands of barrels of oil per hundred miles). It also takes a lot more energy to pump energy over distance, and when pipelines cross multiple countries coordination becomes a nightmare. Nabucco is about 3,000 km while South Stream is about 1,000 km. Longer pipes are far less economical—which matters if the rumors of a Turkmeni price hike are to be believed.

Nevertheless, Nabucco, no matter the objections of Jozias van Aartsen, is clearly an attempt to break part of Europe’s near-total reliance on Russian gas. That is why it assiduously avoids Russian territory, though there are of course the many problems that come from exporting Caspian energy—namely, that the routes from Kazakhstan and Turkmenistan go through Russia already.

From this we can infer that the TransCaspian pipe has been given a shot at life. Nabucco is great, but it is something of a hollow victory if everyone still has to beg Russia or cozy up to Iran to get it filled.

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This post was written by...

– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from Registan.net. His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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