Countdown begins for Nabucco deal, but questions remain

One major obstacle for the deal, for which negotiations have been under way since 2002, was Turkey's insistence on being able to buy 15 percent of Nabucco's gas for domestic use or for re-export at lower prices. Turkish officials suggested yesterday that the row has been resolved, at least for now. No such commitment is expected to be included in the text of the intergovernmental agreement. Instead, Ankara has been promised other guarantees on the security of gas supply, a Turkish official said yesterday. These guarantees include, according to the Financial Times, a commitment that the pipeline will be built so that gas can flow in both directions and Turkey can call on gas stockpiles held in the EU.

The Vienna-based Nabucco consortium aims to reduce Europe's energy dependence on Russia by transporting gas from the Caspian and Middle East through the planned pipeline from 2014. Monday's transit deal will secure the legal basis and conditions for the use of the 3,300-kilometer pipeline crossing Turkey, a candidate to join the European Union, and member states Bulgaria, Romania, Hungary and Austria.

But while it may help finance and reassure supplier countries, the deal will not be a big leap forward for the project which has already been subject to delays. A final financing decision for the pipeline, due next year, will be a solid step but this also depends on the supply issue.

Nabucco wants to pump 31 billion cubic meters of gas to Europe annually to meet some 5 percent of gas needs. It could ship gas from Iraq, Egypt, Iran, Azerbaijan and possibly Russia and Turkmenistan. Kurdish-run northern Iraq in May heralded a plan to export gas from the semi-autonomous region through Nabucco but the central government rejected the scheme.

Expert: Turkey should stick to claim on Nabucco gas Ankara should not give up on its claim to be able to buy 15 percent of the gas to be transported via the Nabucco pipeline because otherwise it will end up a mere transit country in the 7.9 billion euro ($11.04 billion) project. “The European Union wants to turn Turkey into a passive transit country regarding Nabucco,” Hasan Kanbolat, who heads the Ankara-based think tank ORSAM, said in a statement insisting that Turkey has a rightful demand. He argued that EU countries, big consumers of energy, want to create international norms that will allow them to cut transit costs in the transport of energy from suppliers. Turkey has insisted that it should be able to buy 15 percent of the Nabucco gas at cheaper prices for domestic use or re-export, a demand European partners of the project have rejected. A transit deal to be signed by Turkey, Romania, Austria, Hungary and Bulgaria in Ankara on July 13 is not expected to include any commitment to the Turkish demand but will include other guarantees on the security of the gas supply. İstanbul Today's Zaman

Russia's rival South Stream project moved forward earlier this month when Azerbaijan promised Russia's Gazprom priority in buying gas from the second phase of the major Shakh Deniz project.

Gazprom's more practical strategy -- signing basic cooperation agreements with supplier countries -- gives its pipeline a competitive edge by building relationships between companies, experts say.

Turkey, important for both projects and with few hydrocarbon resources of its own, is keeping its options open. "Right now we are working on Nabucco, but will also evaluate South Stream with the Russians," a Turkish government source said. "The important thing is ensuring supply for Turkey," another Turkish government source said. "This is why we don't see South Stream and Nabucco as rivals."

Earlier this month, Russia offered Turkey a role in the South Stream project. Foreign Minister Ahmet Davutoğlu later said Nabucco was a number one priority for Turkey but did not dismiss the Russian offer, saying alternative projects on energy are not each others' rivals.

Romania has also signaled it has horizons beyond Nabucco, saying in May that it will consider other projects if talks do not push forward. Russia has said it is close to signing up Austria and Russia for South Stream.

Analysts say that although the projects encourage competitive posturing from the companies and countries, they are not necessarily fighting over supplies and have different aims.

"In a sense, it is competing if you want to avoid Russia ... but the major objective for Russia is not to compete with Nabucco but to get gas out of the Ukrainian pipeline system and to put it into South Stream," said Susanne Nies of France's IFRI think tank.

But analysts do not see both succeeding in their current form. "The market would not support more than one pipeline," said Mikhail Korchemkin from East European Gas Analysis.

Gazprom overstretched?

Nabucco has to deal with a range of countries unable to put their own interests aside in order to push the pipeline forward, giving state-controlled giant Gazprom another advantage.

But while Nabucco's problems are considerable, including how it would transport gas across the Caspian Sea, analysts say Gazprom may have problems affording South Stream.

"Gazprom and the countries in the project can move faster than a commercial project. But a money-losing project cannot run forever," Korchemkin said.

Nabucco is expected to cost 7.9 billion euros ($11.04 billion) and with its Europe-wide backing should find it easier to secure funding in the long run, analysts said.

Gazprom is Russia's most indebted company with debts of over $40 billion, excluding its former banking arm, Gazprombank. It wants to invest 10 billion euros in South Stream but lower energy prices and depressed exports have made business tough. For several of the countries eyeing both projects, Nabucco will also bring more benefits, Korchemkin said. "Turkey is unable to get gas from South Stream, so it will benefit from Nabucco much more than from any other project."

The attraction of Nabucco is also stronger for some supplier countries, he said. "It is very clear that Nabucco will open up the whole of Europe for Turkmenistan," he said. "It is very important to move towards Turkmenistan."