Energy: Nabucco in doubt

While the ultimate success or failure of the massive Nabucco natural-gas pipeline still hinges on finding a source of Caspian gas, experts are split on what the biggest obstacles are for the project, which once again appears to be on shaky ground.

Analysts say they are receiving mixed signals from Germany, the largest consumer of natural gas in Europe. On one hand, the country's decision to phase out its nuclear energy program by 2022 - announced by Chancellor Angela Merkel in the wake of Japan's Fukushima nuclear disaster - seems to point to a greater need for an alternative to Russian natural gas. However, a recent agreement between German energy giant RWE and Russia's Gazprom to begin talks on a joint venture to build power plants in Europe has many wondering what such a deal could mean for Nabucco, as RWE is the leading partner of the consortium behind the pipeline.

"This could lead to RWE declining its commitment to the Nabucco project, and if that happens, Nabucco will die if there are no immediate substitute utilities," said Claudia Kemfert, an analyst at the German Institute for Economic Research in Berlin.

The estimated $10 billion (168.6 billion Kč) project is considered the biggest and most ambitious of several pipeline proposals designed to diversify Europe's natural-gas supply and reduce its dependence on Russia's resources. The European Union favors the Nabucco plan, which would carry gas from Central Asia through Turkey, Bulgaria, Romania and Hungary, eventually leading to Austria. But since the project's announcement in 2002, it has been fraught with setbacks and delays. Meanwhile, detractors have maintained there is not enough gas to supply the pipeline, which is being designed to carry up to 31 billion cubic meters from the Caspian region.

Germany's much-publicized decision to abandon nuclear power was originally seen as positive news for Nabucco's supporters, but analysts have softened their original optimism, arguing that the need for energy diversification has never been in question.

"It's a good sign for all gas producers and for the main gas-pipeline projects, but I don't believe it has a significant impact on Nabucco's destiny," said Slava Bunkov, an oil and gas analyst at Aton, a Moscow-based investment firm. "The key issue for the project is not about the demand, it's the supply concerns."

Nabucco is one of a number of competing pipeline projects vying for natural gas from the Caspian region with Azerbaijan being the primary target. The former Soviet republic is planning in October to choose from several potential buyers who are interested in bringing to Europe gas from the country's mammoth Shah Deniz II field, which boasts reserves of more than 1 trillion cubic meters. Azeri officials have said they are intent on delivering natural gas to Europe, but they have yet to commit to one buyer. The consortium behind Nabucco has admitted it is not beholden to Azerbaijan as its only supplier.

"Shah Deniz Phase II and Azerbaijan are of critical importance to Nabucco's success, but we also view Nabucco as being critically important to Azerbaijan," said RWE spokeswoman Barbara Minderjahn. "Nabucco has never been about one supply source. Why would we build and invest in a ... pipeline to Europe when the Shah Deniz consortium can do that themselves? Nabucco is about the benefit of multi-source supplies."

The EU is pushing the Nabucco pipeline as the best solution to loosening Russia's grip on the European natural-gas market and has said it also considers Turkmenistan, Iran and Iraq as possible suppliers for the pipeline.

The Gazprom question

RWE's deal with Gazprom, currently Europe's largest natural-gas supplier, has received mixed reactions from energy experts in the region. Some believe the relationship between the two involves more than the stated intent to build power plants in Europe, claiming Gazprom would be unlikely to get involved with a company so heavily invested in a project aimed at reducing Europe's dependence on its gas. But others point to deals Gazprom has made in the past as reason to believe the RWE arrangement poses no threat to the future of Nabucco.

"Gazprom has a lot of conflicts of interests with European companies," Bunkov said, citing the firm's cooperation with companies attached to the competing South Stream pipeline, many of which are also involved with Nabucco.

"There is no binding agreement between the two companies," said Will Peterson, an analyst with the London-based Eurasia Group. "[But] the eventual deal could be tied to some relaxation on price or volume by Gazprom for gas supply to Germany."

Meanwhile, RWE has assured Nabucco's stakeholders that the Gazprom agreement will not affect the project.

"RWE remains committed to Nabucco," Minderjahn said. "Nabucco was not a subject of the negotiations with Gazprom, and the stakeholders know the [two] are not linked."

Jack Buehrer can be reached at
jbuehrer@praguepost.com