Nabucco has support it needs to get built

By DANIEL GRAEBER  |  June 9, 2011 at 7:58 AM
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GRAND RAPIDS, Mich., June 9 (UPI) -- The consortium managing the planned Nabucco natural gas pipeline for Europe has the political and legal backing to move forward, a spokesman said, but supply concerns continue to linger.

Nabucco forms part of the so-called Southern Corridor, a series of transit networks meant to move natural gas from Caspian and other regional gas suppliers to European consumers.

Europe views the Southern Corridor as a way to break the Russian stranglehold on the region's energy sector. Eighty percent of Russia's natural gas bound for Europe runs through Soviet-era transit networks in Ukraine and political differences between Kiev and Moscow puts those supplies at risk.

The $11.5 billion Nabucco project would extend roughly 2,000 miles through Turkish territory to Austria by crossing Romania, Bulgaria and Hungary.

Turkey played host Wednesday to a signing ceremony for project support agreements between the five transit countries and the Nabucco pipeline consortium.

The PSA serves to confirm that the laws that apply to Nabucco are those of 2011 when the agreements were signed. The consortium said Wednesday the support agreements are vital to getting the financial support needed for the pipeline.

"There are no anticipated legal changes that could affect the project but the Project Support Agreements offer a further safeguard for the project and protect it for its lifetime," Christian Dolezal, a spokesman for Nabucco, told United Press International by e-mail. "This is a key factor in terms of securing the bank financing that is required for the project."

The Nabucco consortium announced in September the signing of a mandate letter from the European Investment Bank, the European Bank for Reconstruction and Development and the World Bank to back the project.

The EIB will commit around $2.5 billion, the EBRD around $1.5 billion and the World Bank roughly $1 billion for the pipeline. The European Commission set aside $256 million for the project. The remainder would come from shareholders.

The project, however, faces competition from Russia's planned South Stream natural gas pipeline, which could pass through some of Nabucco's territory.

Russian natural gas monopoly Gazprom is nearly finished building the Nord Stream natural gas pipeline through the Baltic Sea. In May, Alexei Miller, the Russian energy company's top official, told European leaders in Brussels that South Stream would help contribute to regional energy security.

Nevertheless, Gunther Oettinger, the European commissioner for energy, said in a statement that Europe has clear preferences in terms of potential transit options. South Stream, he said, is "not our top priority."

Richard Morningstar, the U.S. special envoy for Eurasian energy, told the U.S. House Foreign Affairs subcommittee on Europe and Eurasia on June 2 that the Southern Corridor made sense for Europe.

Washington, he said, "strongly supports" the efforts to transit natural gas to Europe from the Caspian and potentially other sources outside the region.

Dolezal said the political and legal support for his project made it one of the region's most favorable -- and most likely -- options for non-Russian natural gas.

"The high level political support we have received is very important," he said. "Nabucco is the most advanced project under development at the moment."

But apart from that, Nabucco is up against the wall when it comes to getting agreements from potential natural gas suppliers.

Construction for Nabucco was delayed a year to 2013 and first gas should start moving through the pipeline by 2017, later than initially planned.

Reinhard Mitschek, managing director of the Nabucco consortium, had said the schedule was driven by the timing outlined by potential gas suppliers in the Caspian and Middle East regions.

Nabucco is designed for around 1.1 trillion cubic feet of gas per year, which is three times as much as would be available from the massive Shah Deniz field in Azerbaijan by 2017.

Wolfgang Ruttenstorfer, the top executive at Nabucco consortium member OMV, told Turkish daily newspaper Today's Zaman last year that guaranteeing capacity was the most important factor in getting the pipeline off the ground.

OMV in 2010 said Nabucco might not see the light of day without adequate supplies.

Dolezal told UPI in May, however, that Nabucco would by ready when the gas is ready. Asked if too much emphasis was placed on Azeri natural gas, he said the shareholders in the consortium are in talks with other natural gas giants in the region.

"The shareholders are currently carrying out gas supply negotiations," he said. "Nabucco is expected to source gas from Azerbaijan, the Kurdistan region of Iraq and Turkmenistan."

The $11.5 billion price tag is based on 2008 estimates. New figures and gas contracts are expected later this year.

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