Analysis: Nabucco gets boost

WASHINGTON, Feb. 11 (UPI) -- The U.S.- and EU-backed Nabucco pipeline, which has had little good news since it was first proposed, received a major boost Monday as the European Commission announced that it had approved Austrian rules for the construction of the pipeline.

"The Commission decision on Nabucco shows our support for this project, which will boost Europe's efforts to diversify our supply sources and our gas supply routes," said Energy Commissioner Andris Piebalgs. "The project is important not only for the countries involved but will also contribute to strengthening competition and promoting security in gas supply for the European Union as a whole."

The company that's building the pipeline applied for exemption from the general rule of regulated third-party access in Bulgaria, Romania, Hungary and Austria, though which the pipeline would pass. EU laws permit such exemptions.

"The safeguards to which the exemption is subject include a capacity cap preventing a dominant undertaking from booking more than half of the Nabucco exit capacity in Austria and rules to ensure a transparent and non-discriminatory capacity allocation to third parties," the EC said in a statement.

This is the latest good news for the pipeline, which announced last week that German utility RWE would join the project.

"Nabucco clearly has strong political support but it's been missing a heavyweight downstream component and it has that in RWE," Simon Blakey, a senior director at Cambridge Energy Research Associates, told United Press International in a telephone interview last week.

He, along with other experts, noted, however, that the proposed 2,050-mile pipeline that would carry Central Asian or Middle Eastern gas through Turkey to Austria still has no source of supply.

If built, the pipeline, work on which is expected to begin next year and completed by 2012, would carry 31 billion cubic meters of gas. Supplies are expected to begin a year after the work is completed.

Where the gas will come from is a pivotal question that may be answered by how desperate Europe is to diversify its supplies from Russia, which accounts for one-quarter of all gas supplies to the region. Europe fears a repeat of 2005 when Russia's state monopolist Gazprom cut off supplies to Ukraine over a pricing dispute that many say cloaked Moscow's ire toward Kiev's Western-leaning government. The move resulted in supply disruptions across Europe. Europe fears that Russia, which has been emboldened by rising energy prices, may do the same again and cut off the continent's energy lifeline. With this in mind, it's looking at energy supply routes that will bypass Russia.

Russia, meanwhile, is shoring up pipeline routes of its own, signing lucrative deals with Central Asian and Balkan states for energy supplies to Europe. The most recent of these deals is the South Stream pipeline project with Bulgaria, a 550-mile project that can supply Europe with 30 billion cubic meters of gas annually. The pipeline is expected to come on-stream in 2013 and run from Russia's Black Sea coast under the sea to Bulgaria where it will branch off to different European customers.

When South Stream was announced, the prospects for Nabucco's success appeared all but fatal. With the membership of RWE, however, Nabucco is seen as viable once again. RWE joins project partners Austria's OMV, Hungary's MOL, Romania's Transgaz, Bulgaria's Bulgargaz and Turkey's Botas.

"I think there are fewer and fewer people who doubt the feasibility for Nabucco," said Ferran Tarradellas, a spokesman for Piebalgs.

The EU also envisions other sources for Nabucco, he said.

"The trans-Arabian could bring gas from Egypt, for instance, or even farther away from Libya. … (These are) more sources for Nabucco."

"We are working actively with all the countries in the region for that pipeline," he said.

Still, the question remains: From where will Nabucco get its gas? Each option so far has a compelling argument against it. Azerbaijan's Sah Deniz fields has enough only to supply the first phase of the pipeline. Turkmenistan has promised away much of its natural gas to China and Russia. Iran, which has the world's No. 2 natural gas reserves, remains a political pariah and has a crumbling energy infrastructure. And security hazards, coupled with billions in needed investment, make Iraq a short-term near-impossibility.

"They are talking and talking but there are no commercial agreements for gas," said Andrew Neff, a Turkey-based senior energy analyst at Global Insight, a London-based think tank. "The South Stream project and Nabucco are not mutually exclusive but its (South Stream's) progress undercuts part of the argument for building Nabucco."

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(With reporting by Ben Lando)