Nabucco: Competition key to EU gas race

By DANIEL GRAEBER  |  July 6, 2012 at 8:07 AM
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Competition in the European natural gas sector may be the best way forward for a region looking for a diverse market base, a spokesman for the Nabucco natural gas pipeline consortium said.

A consortium led by British energy company BP has selected a scaled-down version of the Nabucco pipeline as a potential option to carry natural gas from the Shah Deniz II project in the Azeri waters of the Caspian Sea. By next year, the BP-led group should decide between so-called Nabucco West and the Trans-Adriatic Pipeline as the conduit for Azeri natural gas.

Both projects are part of the Southern Corridor, a network of pipelines meant to add diversity to the regional natural gas sector. Russian energy company Gazprom in 2006 and 2009 briefly cut supplies to Ukraine because of contractual disputes. That left European countries with a natural gas shortage as the bulk of their Russian supplies run through Ukraine's gas transit system.

Christian Dolezal, a spokesman for Nabucco Gas Pipeline International GmbH, told United Press International Europe needs more competition in order to protect the eurozone from a similar gas shock in the future.

"Russia is already a reliable partner for Europe," Dolezal said. "But competition is what's needed in an interconnected natural gas market."

Gazprom has moved forward with the construction of its Nord Stream natural gas pipeline through the Baltic Sea. A separate pipeline, South Stream, is planned by Gazprom for the Turkish waters of the Black Sea. Turkey, in any configuration, is positioning itself as a regional energy hub. It already hosts the Baku-Tbilisi-Ceyhan oil pipeline, one of the longest in the world. With South Stream and possibly Nabucco West, its status as a major transit country would be solidified.

Alexandros Petersen, an adviser with the European energy security initiative at the Woodrow Wilson International Center for Scholars, told UPI Gazprom is far from "reliable" given the Kremlin's use of gas contracts as a geopolitical instrument.

"The Southern Corridor pipelines are important precisely because they provide more and better options to European consumers," Petersen said.

Dolezal, for his part, said projects should be seen as complementary more than direct competitors if they're to be beneficial.

"I don't want to underestimate other projects, but at the same time I don't want to venture too far outside the framework of Nabucco West," he said.

Nevertheless, European Energy Commissioner Gunther Oettinger said the selection of Nabucco West gives the region confidence about the security of its future energy supplies. The BP decision, he said in a statement, is "a success for Europe."

Multisourcing for Nabucco and for the European community, said Dolezal, is an integral part of energy security. BP, in its yearly market report, said natural gas accounts for 31 percent of the projected growth in global energy as oil declines from the overall market share. Despite the lackluster performance of the eurozone, the British energy company said "virtually all of the growth in net imports is from natural gas."

The Shah Deniz II field holds an estimated 42 trillion cubic feet of natural gas. The International Energy Agency expects annual European natural gas demand to increase at a modest pace within the next five years despite the lingering debt crisis. Russia remains a secure energy supplier to the European community despite the tough policies enacted by Gazprom. Though unconventional natural gas reserves in Europe could theoretically cut into Russia's market share, any development there is years away. Meanwhile, while Europe is eager to break away from Russia, Gazprom in June said its market share in the region last year was up 4 percent compared with 2010.

Dolezal stressed security comes through diversity, but Europe may need to secure natural gas beyond Azerbaijan, assuming growth returns to the eurozone. The spokesman said Iraq may be "an eventual source" given the large presence of European energy companies working in the Kurdish north. Further east, gas-rich Turkmenistan may emerge as a Nabucco player as the supplier base evolves. But while interdependency can bring stability to the players involved, political disputes in Iraq and ongoing turf battles in the Caspian Sea could keep some potentially major players in the European energy market sidelined for the foreseeable future. Nevertheless, Dolezal said "common solutions" is the key phrase for market stability.

Petersen, however, said it's likely Turkish and Azeri energy companies, not the Nabucco consortium, will call the shots in terms of expansions to any eventual network outside the European Union.

By this time next year, the BP-led consortium will have picked between Nabucco West and TAP. Whatever the outcome, said Oettinger, Azerbaijan has established itself as a gas partner in the European community alongside Russia.

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