Nabucco pipeline delayed again

Nabucco, the gas pipeline that is planned to bring Middle Eastern and Caspian gas to Europe and decrease reliance on Russian supplies, has been delayed once again and is now forecast to cost more than originally planned.

The price adjustment threatens to dampen some energy companies' interest in continuing cooperation with the project consortium, and the delay could allow competing gas lines to beat it to both gas supplies and customers.

The European Commission-backed project was originally set to go online in 2015, but now will be delayed by two years to 2017. Construction should start in 2013, or "as soon as there are firm indications that gas-supply commitments are in place," according to Reinhard Mitschek, managing director of Nabucco Gas Pipeline International.

"That's a long time in the world of energy security. ... This could cause it to not be as economically competitive as other sellers in the marketplace when it goes online," said Peter Doran, a senior policy analyst at the Center for European Policy Analysis in Washington, D.C. That could make Nabucco less viable for investors, especially if costs double as some have forecast.

Nabucco's shareholders, responsible for securing the gas contracts, have yet to secure any solid commitments for gas supply, but according to Christian Dolezal, a spokesman for Nabucco Gas Pipeline International, they are in "intensive negotiations" with suppliers in Turkmenistan and Iraq, as well as Azerbaijan. So far, the most hopeful talks have been with Azerbaijan's Shah Deniz II field, which could be threatened by the competition of smaller pipelines in the area, namely the Italian ITGI.

Even if Nabucco's shareholders did secure the contract with the Shah Deniz II field, that would only account for about one-third of the 31 billion cubic meters of the pipeline's capacity and other sources could prove costly and politically complicated.

The pipeline's management has rejected any ideas for reducing the project's capacity despite supply issues.

Reliance on Russia

Nabucco's major competitors are the South Stream line and the Nord Stream line, both progressing smoothly with strong backing from Russia, where they originate.

"There is a lot of competition between Russia and alternative suppliers, and the stakes are very high," Doran said. "These are extremely expensive projects, and if you can't line up the consumers downstream, there is no use in building upstream."

And while the European Commission insists Nabucco is not about snubbing Russian gas, if those two pipelines were to beat Nabucco to the market, it could threaten the entire concept of reducing reliance on Russia.

"As a country that does not have its own gas reserves, the Czech Republic has very great interest in the import of natural gas. This is why we support the Southern Corridor gas projects and the Nabucco gas pipeline," President Václav Klaus said in an interview on a visit in Azerbaijan.

Nord Stream, a 1,224-km underwater pipeline between Russia and Germany, saw two of its gas pipelines completed in early May. South Stream is a 900-km pipeline set to carry gas to South and Central Europe from Russia, and is expected to be finished at the end of 2015, though it has yet to secure a transit agreement with Turkey.

European Energy Commissioner Günther Oettinger said the cost of the pipeline has gone up to 15 billion euros from the originally planned 7.9 billion euros, which has been contested by the pipeline's management, and analysts say it is still hard to determine.

"When someone just draws a line on paper and says, 'This is Nabucco,' it doesn't impress me," Czech Ambassador-at-Large for Energy Security Václav Bartuška told The Prague Post.

"Without specification, any target about the budget is just a guessing game," he added.

Nevertheless, Austrian consortium member OMV voiced concern about the project's costs when its Chief Financial Officer David Davies said May 11 that if Nabucco ceases to be financially attractive, "our interest level is naturally going to wane."

Funds for Nabucco will likely be 30 percent from the shareholder consortium of six firms and 70 percent from lenders. The pipeline's management expects that about one-third of funding will be obtained from international institutions like the European Bank for Reconstruction and Development and the European Investment Bank. So far, the EU has provided 200 million euros for the project.

"The financing aspect has been slightly overlooked," said Michael LaBelle, research project manager for 3CSEP at Central European University in Hungary. European countries back the pipeline politically, he said, but haven't helped much financially, which could make "supplier countries ... more reluctant to provide supply, as they can just as well export."

Getting Turkey on board

The last and probably least of Nabucco's worries right now is it also has yet to secure an agreement from Turkey, which will be one of the transit countries. There has been some speculation about whether the competing gas lines would threaten Turkey's cooperation, but Turkish Energy Minister Taner Yildiz told Reuters May 16 that his country plans to sign a support agreement with Hungary on the Nabucco pipeline project June 6.

"Turkey has an interest in seeing Nabucco happen. This elevates its strategic importance to Europe and ultimately brings Turkey one step closer to being an energy gas hub to European, Caspian and Middle Eastern consumers," Doran said.

At the end of the day, however, Europe's shifting energy demands could make waiting until 2017 to go online a good thing for Nabucco, LaBelle said, as countries will likely increasingly turn to imported gas.

"There's a glut of gas on the market at the moment with reduced demand and an increase in shale gas," LaBelle said. "Right now, the demand is not adequately there. They need to be able to sell it right into the market to get money back for the investors. There's no need to build so huge and expensive a project and have it come online in a soft market when it can be delayed."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com