First pipeline built will block the other: Nabucco versus South Stream

While these developments made Turkey part of the energy rivalry, it has become clear that Turkey does not have the luxury of being on a single side just as it does not have the luxury of supporting a particular side in its foreign policy. An important point we need to realize under these circumstances is that the position Turkey will choose will not only determine energy routes but will also determine its foreign relations.

On the other hand, the Russian-Georgian conflict that erupted in the Caucasus in August 2008 directly affected energy policies, consequently escalating the Caspian-oriented energy competition.

The Georgian leg of the Baku-Tbilisi-Ceyhan (BTC) pipeline, which is the basis of the East-West energy corridor, lost reliability and suffered political damage during the Russian-Georgian conflict. This situation facilitated the development of new projects outside the Russian monopoly and increased the likelihood of the implementation of the long-awaited Nabucco project.

Debates over signing an intergovernmental agreement on the Nabucco project started in June, and it was ultimately decided that a signing ceremony would be held in Ankara on July 13. However, this brought with it more competition in the energy market. On the one hand, Russia sought to develop closer ties with Azerbaijan, and on the other, it extended an offer to Turkey to join the South Stream project. In this context, questioning Turkey's location in the energy competition between the Nabucco and South Stream pipeline projects has become more important. It is for this reason that it is necessary to understand the significance of the project in question for actors in the Caspian energy competition, particularly Turkey.

Nabucco gas pipeline project

The Nabucco gas pipeline will measure 3,300 kilometers, cost an estimated 7.9 billion euros and open in 2013 or 2014. Nabucco Gas Pipeline International GmbH, a consortium of the state-run Turkish Pipeline Corporation (BOTAŞ), OMV (Austria), RWE (Germany), MOL (Hungary), Transgaz (Romania) and Bulgargaz (Bulgaria), was developed for the project. Each participant has an equal share in the consortium.

The Nabucco project aims to transport Middle Eastern energy, especially from the Caspian, to Europe via Turkey. Azerbaijan and Turkmenistan will be the main gas suppliers. While the project is mainly intended to ensure Europe's energy security, the Nabucco pipeline will also break Russia's gas monopoly over European countries. In addition to this, Nabucco will help Europe diversify its natural gas supply thereby allowing it to bypass Ukraine, which experiences frequent gas supply cuts due to problems with Russia.

The Nabucco pipeline will run from Turkey's eastern border, through Bulgaria, Romania and Hungary, to a key gas terminal in Austria. It is expected to carry 30 billion cubic meters of natural gas to Europe annually by 2020. The pipeline is intended to be linked up with the Baku-Tbilisi-Erzurum and the Turkey-Iran natural gas pipelines as well as with the planned Trans-Caspian pipeline. It is also intended to be a part of the EU's trans-European energy network.

South Stream project

The South Stream project will span 3,200 kilometers and cost an estimated $10 billion. A pipeline measuring 900 kilometers will run 2,000 meters under the surface of the Black Sea from Russia's Novorossiysk port to a Bulgarian port. The construction of the pipeline is expected to be completed in 2015. The South Stream project, which will have the capacity to transport 30 billion cubic meters of natural gas annually, poses a threat to both the EU's diversification of its energy supplies and Turkey's plans to become an energy corridor. With the South Stream project, Russia will be able to transport natural gas to Europe and Turkey from the same region.

The joining of three partners in the Nabucco consortium, namely Austria's OMV, Hungary's energy company MOL and Bulgarian company Bulgargaz, to Russia's South Stream project, which is the biggest rival of their own project, is a serious inconsistency.

The agreements Germany, France and Italy signed with Russia's state-controlled Gazprom are another contradiction. Actions that violate the policy devised by European countries to diversify their energy supplies in order to end their reliance on Russia are not only the primary inconsistency in the Nabucco project but also reflect a failure to develop a common energy policy in the EU. The US embargo imposed on Iran is another issue believed to have undermined the Nabucco project.

The Nabucco project is of paramount importance not only for European countries but also for Turkey. About 2,000 kilometers of the pipeline will be laid in Turkey, allowing it to receive around 60 percent of the tax revenue from the project.

Moreover, the project supports Turkey's plans to become an east-west energy corridor and facilitates Turkey's energy security as well. Since Turkey will offer a safe route for the transportation of natural gas to Europe, the project may support and boost membership negotiations with the EU. But there are basic problems that Turkey has with the project. The main one being Turkey's natural demand to use 15 percent of the gas, as a large portion of the pipeline will be located in Turkey. However, European countries have said Turkey is simply a transit country.

There are claims that the delay in the previously planned June 25 Nabucco signing ceremony was caused by Turkey's self-interested actions to ensure its energy security. But the problem remained even after an agreement was signed on Monday. Aside from this, the project aims to end Russia's monopoly over Eurasian pipelines, which is the reason it is supported by both the US and the EU. But Russia has tried to delay the project time and time again. It signed an agreement with Kazakhstan and Turkmenistan in 2007 to buy large amounts of natural gas. Recently, Russia signed an agreement to buy gas from Azerbaijan, which will be the primary natural gas supplier for the Nabucco pipeline.

Russia views Nabucco as a rival to its South Stream pipeline and is working to buy up gas that would supply Nabucco. Gazprom signed a natural gas deal with State Oil Company of Azerbaijan Republic (SOCAR) in April to buy 500 million cubic meters of gas annually starting on Jan. 1, 2010. There is a striking difference between the price Russia has offered for natural gas from Central Asian countries, especially Turkmenistan, and the price it has offered Azerbaijan.

While Russia pays $150 for 1,000 cubic meters of natural gas from Turkmenistan, it will pay up to $350 for natural gas from Azerbaijan. This situation clearly shows that Russia is willing to sacrifice much for the sake of its political interests.

Moreover, Gazprom CEO Alexei Miller said this price would increase in the future. The media assessed the deal between the two countries as a Russian tactic to hinder Nabucco and warned that the existing problem of finding suppliers would become worse.

The price set in the current agreement will not pose a problem in finding suppliers; in fact, the price is very low and can simply be considered a symbolic price. But what makes the agreement more important is the political message it carries. The message of the agreement is that Russia opposes the Nabucco project and has control over all the energy resources in the region that can be used to supply natural gas to Europe. Azerbaijan's deal with Russia can be seen as a political message to protest Turkey's effort to normalize relations with Armenia and to win Russia's support on the Nagorno-Karabakh issue. This would explain why Azerbaijan is only offering a symbolic amount of gas to Russia. But it is through this method, namely signing agreements with Nabucco's main suppliers Azerbaijan and Turkmenistan, that Russia has sought to weaken the Nabucco project, which is a competitor of the South Stream project. As a result of these developments, Azerbaijan and Turkmenistan have become the focal point of competition in the Caspian energy policy.

Meanwhile, in the international arena, the Nabucco and South Stream projects have become a subject of energy competition between Russia and the West. While one group of experts believes the two projects are alternatives to each other, other experts point to Europe's increasing energy need and argue that the projects are not rivals. It should be possible to determine whether Nabucco and South Stream are rivals or alternatives to each other by comparing the two projects. There are two main points that emerge with regard to this issue.

Both projects operate in the same market. In other words, both Nabucco and South Stream intend to transport natural gas to Europe. Since both projects target the same market, they can be considered competitors. The supply sources are changing for both projects. South Stream will mainly be supplied by Russia and gas purchased from Central Asian countries. Nabucco's main gas supplier will be Azerbaijan. Although Turkmenistan, Kazakhstan, Iran and Egypt are seen as possible suppliers for Nabucco, there are many problems with actually getting them involved. As a result, Nabucco has more gas supply problems than South Stream. But without gas supply from Central Asia countries, Russia does not have the resources to supply South Stream. Russia's energy production is on the decline, and its reliance on natural gas from Central Asia is on the rise. The project that is completed first will cause the other one to be postponed due to financial problems and a lack of resources. In this respect, the Nabucco and South Stream projects will compete with each other in the short and medium term.

From the perspective of European countries, the main issue is first and foremost transporting natural gas to countries such as Germany, France and Italy. Other EU countries such as the former Soviet republics oppose South Stream because they want to decrease their reliance on Russia and therefore support Nabucco instead. From the perspective of Turkey, the Nabucco project is more in line with the country's interests. For example, the Nabucco project is expected to ensure Turkey's energy security and reinforce Turkey's aim of becoming an energy corridor. The South Stream project will only pass under the Black Sea and in a sense bypass Turkey as a transit country. Meanwhile, the real competition between the Nabucco and South Stream projects will take place between Russia and the US. Russia has leverage in European politics by managing the natural gas flow to Europe, but the US does not want Russia to be active in Europe via the pipelines. The reason for the US's reluctance is related to the fact that Russia uses energy as a weapon in its foreign policy.

Ultimately, the first pipeline to be built to transport Caspian energy to Western markets will postpone the construction of the other for a long time.