Farewell to ‘greater’ Nabucco as TANAP emerges to replace it

Everything began with much enthusiasm when Nabucco –- a natural gas transfer »»

Everything began with much enthusiasm when Nabucco –- a natural gas transfer project designed to carry Caspian gas to European markets, bypassing the Russian route –- was introduced in 2002. But the curtain is now likely to fall over the big dreams as the past 10 years have wiped out much of Nabucco's vigor.

Initially hailed as a “pan-European” project that could reduce European consumers' dependency on Russian natural gas, Nabucco now seems unlikely to be realized as it was originally introduced given the recent emergence of much stronger rivals. The Nabucco Consortium or the Nabucco Gas Pipeline International GmbH (Turkey, Bulgaria, Romania, Austria and Germany) on Wednesday announced that they have applied to Azerbaijan's Shah Deniz II gas producers' consortium to receive gas from them for the project's now shortened version “Nabucco-West.” Observers argue this marks the end of “greater” Nabucco. The Shah Deniz gas producers' consortium had earlier set a May 16 deadline for Nabucco to submit their proposals for a possible gas purchase. Nabucco Gas Pipeline International GmbH Managing Director Reinhard Mitschek in a written statement on Thursday characterized their proposal to Shah Deniz II as a “chance for a win-win deal.”

Following a December 2011 contract between Turkey and Azerbaijan, a new rival for Nabucco emerged: the Azerbaijani-Turkish Trans-Anatolia Pipeline Project (TANAP). The proposed TANAP would be 2,400 miles long with an estimated construction cost of  $5 billion. It is expected to transit natural gas from Azerbaijan's Shah Deniz II fields in the Caspian Sea across Turkey. TANAP suggested that Nabucco continue -– in a shortened form –- its way from the Turkish-Bulgarian border into the Baumgarten continental hub near Vienna. The larger Nabucco project then started to be referred to as "Nabucco-West." Shah Deniz shareholders, including such big players as BP and Norway's Statoil, promote Nabucco-West be linked to the planned TANAP and apparently so does Turkey.

The Financial Times on Wednesday quoted Turkish Energy Minister Taner Yıldız as saying Turkey and Azerbaijan would conclude an agreement to start construction of a new pipeline to transport gas from the Caspian state’s giant Shah Deniz field. Yıldız told the FT that he found TANAP “more realistic to begin with,” a strong indication and signal of an end to Nabucco’s Turkey section. Yıldız, however, does not completely rule out Turkey’s participation in the revised version of Nabucco. He said, “It would not be appropriate to say that this project is over,” a statement that keeps Turkey on the table for a new version of Nabucco.

These latest developments declare the end of Nabucco as it was initially introduced, World Energy Council Turkish National Committee board member Necdet Pamir told Today’s Zaman. According to Pamir, this could be for Turkey’s benefit in the end. “The intergovernmental contract that participants of Nabucco agreed on failed to meet Turkey’s expectations. Turkey initially demanded that it receive relatively higher amounts of gas from the pipeline at relatively cheaper prices so it would be able to become a natural gas trade hub and sell gas to third parties. None of these seemed likely to be achieved with Nabucco; TANAP could be a better option,” he argued. Pamir, however, has some reservations. He said the government should make sure Turkey gets what it deserves from the agreement. “Turkey will not have much to gain from TANAP unless it positions itself as gas hub country rather than just a transit country,” he added. Observers argue Turkey and Azerbaijan should resolve differences in TANAP’s ownership structure. The original TANAP agreement included an 80 percent stake for the State Oil Company of the Azerbaijan Republic (SOCAR). Turkey’s Petroleum Pipeline Corporation (BOTAŞ) and the Turkish Petroleum Corporation (TPAO) are designed to share 10 percent stakes. But sources say the two are demanding a 50 percent stake to split between them.

Turkish Association for Energy Economics (TRAEE) President Gürkan Kumbaroğlu told Today’s Zaman that Nabucco is now out of the way. Trans Anadolu was a surprise development but he thinks it is a better option for Turkey. “Turkey undertakes a relatively bigger role in TANAP and could potentially claim the role of natural gas exporter to Europe,” he said. According to the association head, Turkey could gain a role in the energy market with TANAP provided that the desired measures are taken. “Turkey must intensify its efforts to secure as much domestic supply from diversified resources as it can,” he added.

Some other experts believe Nabucco’s original version is not dead yet. İstanbul Technical University Energy Institute Director Abdurrahman Satman is one of them. In a phone interview with Today’s Zaman, Satman said providing gas supply from Shah Deniz II actually strengthens Nabucco investors’ hand. “European buyers are determined to forge the creation of an alternative gas supply channel through Turkey, bypassing Russia. … Nabucco remains a viable project so long as Europe maintains this objective,” Satman pointed out.

Pipeline of pipelines?

The Nabucco project takes its name from Giuseppe Verdi’s famous opera that in its final scene acclaims Babylonian King Nabucco as the “King of Kings.” The villain turns into a hero in the end in Verdi’s famous play, but could today’s Nabucco claim a similar title to become the “Pipeline of Pipelines?” Those who reply no to this question now outnumber those who say yes. The replacement of Nabucco by TANAP is a fact supported by some strong statements just recently.

Questions about the viability of Nabucco have for some time kept the agendas of investors busy. Hungarian participant MOL had raised these concerns when it announced it was leaving the project. Doubts over Nabucco grew when German energy giant RWE, the second largest investor in Nabucco, said it seriously considered following MOL’s footsteps. Both Hungarian and German parties cited a lack of proper legal grounding and increased costs for Nabucco. These were the same concerns allegedly shared by all parties involved in Nabucco behind closed doors. MOL was the first to put these reservations into actions.

Nabucco becoming Nabucco-West can actually be a much more attractive option for the European Commission, which has exerted great efforts to keep the Nabucco dream alive, observers argue. With Azerbaijan undertaking construction of a long Turkish section with TANAP, Nabucco-West becomes as much as 50 percent less expensive for financially troubled EU participants to build than its former version. Nabucco was originally planned to carry 31 billion cubic meters of gas a year. With the latest reshaping of the project this capacity could decline as much as two-fold.

Meanwhile, Russia still remains a prominent player in the profitable business of supplying Europe with natural gas. The country has, from the very beginning of Nabucco’s announcement, tried its best to downplay the importance of the project. This was an understandable reaction since the natural gas-rich country does not want its dominance in European natural gas markets put at peril in any way. Russian sources welcome the latest news of the Nabucco-West formation with much joy. Russia has already coaxed Turkey to approve a planned South Stream pipeline project, which will transport Russian natural gas to Europe by passing through Turkish territorial waters. The deal between BOTAŞ and Russia’s Gazprom envisages linking the pipelines of the Gazprom-led link on Bulgarian territory after passing through Turkey’s territorial waters. South Stream will transport up to 63 billion cubic meters of gas when it opens in 2015.