x Abu Dhabi, UAEMonday 24 July 2017

Middle East gas could be the answer to Nabucco dilemma

Middle Eastern natural gas could be piped to Europe within five years as the continent seeks to lessen its dependence on Russia.

Middle Eastern natural gas could be piped to Europe within five years as the continent seeks to lessen its dependence on its main supplier, Russia and its former Soviet satellites. The planned Nabucco pipeline from Turkey to Austria was originally designed to carry Central Asian gas, bypassing Russia, but the project sponsors have been unable to secure the needed gas supply and are casting around for alternatives.

Gas from the Middle East is a possible solution and would enhance the project's strategic benefits as an insurance policy against over-dependence on Russia. The ?7.9 billion (Dh29bn) pipeline, if built, would be the first to provide pipeline access for Middle Eastern gas to Europe. It would supply about 10 per cent of Europe's gas demand. As such, it is considered crucial for reducing European dependence on Russia's monopoly gas export network and pricing policies to supply the continent's growing gas needs.

Nabucco was conceived as a conduit for up to 31 billion cubic metres annually, or about three billion cubic feet per day (cfd), of Caspian-region gas from the Central Asian states of Azerbaijan, Kazakhstan and Turkmenistan. But now, reliable supplies from those countries seem uncertain, so its backers are seeking to diversify gas sources through deals with Arab and Middle Eastern states. Although a number of Middle Eastern countries have large reserves of gas, few are major gas exporters.

Construction of the 3,300km pipeline is slated to begin next year, with completion expected in 2012. The Nabucco line would pass through the Eastern European states of Bulgaria, Romania and Hungary on its way from Turkey to a major Austrian gas hub. At its eastern terminus, Nabucco would be connected to the Tabriz-Erzurum pipeline from northern Iran to eastern Turkey, and to the South Caucasus pipeline carrying Azeri gas. That pipeline would eventually connect to the Trans-Caspian pipeline, a proposed undersea link between Turkmenistan and Azerbaijan on opposite shores of the Caspian Sea.

OMV, the Austrian integrated oil and gas company, is Nabucco's project leader. The other shareholders are MOL, the Hungarian petroleum enterprise, Transgaz and Bulgargaz, the Romanian and Bulgarian gas utilities, Botas, the Turkish pipeline company, and RWE, the German energy group. Each partner holds 16.67 per cent of Nabucco Gas Pipeline International, the Vienna-based consortium founded in 2004 to develop the pipeline.

Azeri and Kazakh state oil companies have expressed interest in joining the Nabucco consortium. So did the French company, Gaz de France, only to be rejected by Turkey over a political spat. Indeed, the Nabucco project has encountered anything but smooth sailing in its four-year history, and its future is far from assured. As with most other recent massive energy projects, costs have soared from initial estimates - in this case, by more than 70 per cent.

Nabucco is also behind schedule. The blame for this is Turkey's, despite that country's aspirations to transmute its historical position as a trade and cultural gateway connecting Europe and Asia into a 21st century role as an energy transit hub between the two continents. Paradoxically, the delays confound Turkey's hopes of Nabucco strengthening its economic links to the European Union and bolstering its hard-fought case for EU accession.

In last year's row with France, Turkish officials suspended talks with Gaz de France in protest over a French bill that labelled mass killings of Armenians under Ottoman rule a genocide. By allowing politics to intrude into business dealings, however, the Levantine republic squandered a unique opportunity to improve relations with the chief opponent of its joining the EU. Further delays followed. Last month, after Bulgaria and Hungary urged project expedition following a missed deadline for signing an intergovernmental agreement on Nabucco, Recep Tayyip Erdogan, the Turkish prime minister, said the pact would be signed in the "next several months".

Analysts blamed the holdup on protracted gas price negotiations between Turkey and Azerbaijan that prevented the Caspian state from committing gas to Nabucco. Some Nabucco partners consequently joined the rival South Stream pipeline project that would bring Caspian gas supplies to Europe via Russia. Ankara has also been bickering with Nabucco's European partners over whether it should merely receive a transit fee for the gas or be allowed to market it.

Another problem, not of Turkey's making, has been Moscow's aggressive response. Early last month, on the eve of the Russian president Dmitry Medvedev's visit to Ashgabat, the Turkmen capital, a Russian presidential aide said there would be no need for Turkmenistan to pursue energy projects with other countries, because Russia was ready to buy its gas at market prices. During the presidential visit, Gazprom's chief executive, Alexei Miller, said Russia would boost its gas imports from Turkmenistan. Separately, he said Gazprom would offer market price to start importing as much gas as possible from Azerbaijan.

In an earlier Russian move that may have been aimed at influencing Turkmenistan's choice of an export route for its gas, Moscow signed a US$70 million (Dh257m) military contract to deliver six Smerch jet salvo fire systems to the Central Asian state, renewing military collaboration with its former southern Soviet satellite. In mid-July, Turkmenistan said it was ready to start building a Moscow-backed pipeline and to start shipping an extra 10 billion cubic metres annually of gas to Russia in 2010.

It is also building a pipeline to China. Russia, with the biggest share of global gas reserves and production, does not need to import gas from its Caspian neighbours. Any gas purchased would be re-exported, underlining the Kremlin's determination to protect its stranglehold on the lion's share of Europe's gas supply. Hilmi Guler, the energy minister of Turkey, had previously tried to smooth relations with Moscow by insisting his country could play a role in both Nabucco and Russian pipeline projects - a position openly scorned by Vladimir Putin, the prime minister of Russia. The two countries have only recently resumed talking on energy matters.

The failure of Turkish diplomacy in relation to Europe and Russia could now leave Nabucco's future dependent on the outcome of Ankara's parallel efforts to strengthen ties with its Muslim neighbours, including Syria and Iran. For more than a year, Mr Guler has been negotiating energy deals with Iran that, among other things, would see the Islamic Republic increase gas exports to Turkey. At the moment, those amount to the unreliable transfer of roughly 500 million cfd of Turkmen gas to Turkey, via northern Iran. Last winter, when Turkmenistan curtailed gas exports to Iran over a price dispute, Iran cut exports to Turkey.

That could change, although not overnight. Iran, after all, has the world's second-largest gas reserves, after Russia, and wants to develop them both for domestic consumption and export. Hampered by US-led sanctions over its nuclear programme that have scared off potential western participants in its energy sector, Tehran has been courting Turkey for financial and technical assistance with developing its vast South Pars offshore gasfield. In July last year, Turkey agreed to invest $3bn over seven years to build operating equipment for the Gulf project.

For its part, Tehran had signalled willingness to stand up to Russian designs on Caspian gas by opening negotiations to import Azeri supplies, giving Ankara good reason to keep its back door to the Caspian region open, despite the risk of ruffling US and EU feathers. But in mid-July this year, the National Iranian Oil Company agreed to co-operate with Gazprom on oil and gas development in Iran, casting a further cloud over Nabucco's future.

However, Turkey has also been mending fences with Syria, another country on the US blacklist. Diplomatic efforts recently included Turkish mediation of peace talks between Syria and Israel, and have embraced the energy sector. In June, at a Turkish-Arab economic forum in Ankara, the Syrian oil minister, Sufian Alao, said Turkey and Syria are seeking to collaborate on oil and gas exploration in both countries and may even develop nuclear plants together.

Syria is not a major gas producer, but its energy agreement with Turkey bodes well for future Turkish gas imports from Egypt. An extension into Syria of the existing Arab Gas Pipeline, linking Egypt and Jordan, was recently completed. Earlier this year, Syria and Turkey signed an agreement for a joint venture to build a further extension into Turkey, scheduled for completion in 2011. The extended Arab pipeline would be strategically positioned eventually to receive gas exports from an economically resurgent Iraq. Indeed, Turkish companies are already exploring for oil and gas in northern Iraq.

The potential for Arab gas to boost Nabucco's economic viability has not escaped EU attention. In May, the European commissioner for energy, Andris Piebalgs, and the external relations commissioner, Benita Ferrero-Waldner, met representatives of Egypt, Jordan, Lebanon, Syria, Iraq and Turkey in Brussels to discuss the possibility of connecting the Arab Gas Pipeline to Nabucco. Mr Piebalgs said the commission had signed deals to start receiving two billion cubic metres annually of Egyptian gas through the pending pipeline link to Turkey, and to purchase five billion cubic metres per year of gas from Iraq, once that country's Akkas gasfield starts producing, potentially in 2011.

Under the best-case scenario, Turkey could realise its ambition of providing an energy bridge between Asia and Europe, with a bonus link to North Africa. By forging lasting trade ties between the regions and helping stabilise the economies of several emerging nations, Nabucco could even help calm pervasive Middle Eastern and Central Asian political strife. A distinctly darker future is looking rather less likely, now that Turkey has narrowly averted an internal political crisis that could have seen its ruling political party banned by the country's top court. Still, any resurgence of the ideologically driven opposition tactics that almost resulted in a judicial coup d'etat could threaten the state's delicate foreign policy balancing act.

If that collapsed, collateral damage would include Europe's best hope for gas supply diversification and the Middle East's best midterm opportunity to become a major gas exporter to Europe. @Email:tcarlisle@thenational.ae