x Abu Dhabi, UAEThursday 18 January 2018

Nabucco pipeline gains support

Analysis Support for the pipeline that will allow Europe's gas supplies to bypass Russia is gaining.

Support for the Nabucco pipeline has gained momentum in the past few days after a five-nation accord was signed on the project to ship central Asian and Middle-Eastern gas to Europe, bypassing Russia. The pipeline's future remains uncertain because it has yet to receive commitments from gas suppliers or customers, but several countries in the past few days have said they want to supply gas to, or buy it from, Nabucco, or help fund the ?7.9 billion (Dh40.89bn) project.

On Friday, the US special envoy for Eurasian energy, Richard Morningstar, said Washington would help secure gas for Nabucco by organising meetings between Nabucco consortium officials, potential supplier countries and contractors. "There are limits to what we can do but we can certainly encourage the countries that are involved to take steps that would move the process along," Mr Morningstar told Dow Jones.

He said he had met Gurbanguly Berdymukhamedov, the president of Turkmenistan, last week and that the US was helping arrange meetings between western energy companies and Turkmen officials aimed at forging gas-supply deals. There has already been a result. The state media reported on Friday that Turkmenistan, which has the world's fourth-largest gas reserves, had awarded a contract to Germany's RWE for gas exploration and production in the Caspian Sea.

The deal follows a Turkmen offer in April to make 10 billion cubic metres of gas available annually for transport towards Europe. Turkmenistan and Azerbaijan began talks last week to agree on a border in the Caspian Sea. The move boosts the chances of an undersea pipeline being built between the two gas-rich countries, providing the most direct route for Turkmenistan to send gas to Turkey, where it could enter the Nabucco line.

Traditionally, most Turkmen gas exports have flowed to Russia but relations between the two former Soviet neighbours have soured in recent months. In April, Turkmenistan blamed Russia for an explosion on the main Turkmen export line, claiming Russia had caused a pressure build-up by sharply reducing gas imports without warning. Turkmenistan has since courted China and Europe as new markets for its gas, last month accepting a US$3 billion (Dh11.01bn) gas development loan from Beijing.

Last week, Turkmenistan also agreed to increase gas exports to Iran by 75 per cent to 14 billion cu metres from 8 billion cu metres. The extra gas imports into northern Iran could allow more Iranian gas to flow to Turkey. "Turkmenistan wants to have diverse routes and diverse customers," Mr Morningstar said. Azerbaijan also aspires to export gas directly to Europe via Turkey rather than being obliged to sell gas to Russia for re-export. But to do this, it needs to negotiate a gas transit agreement with Ankara, which has so far proved elusive.

But some analysts predict that the Turkish government's decision to sign the Nabucco agreement will make Ankara more eager to conclude a deal with Azerbaijan. The Nabucco agreement also clears the way for the pipeline's backers, which include Austrian, Hungarian, Romanian, Bulgarian and Turkish energy firms, as well as RWE, to negotiate binding deals with potential gas customers in a process called an "open season".

On Thursday, the state-controlled Polish Oil and Gas Company said it would apply for 1 billion cu metres of annual gas supplies from Nabucco to reduce its dependence on Russia. The company's chief executive, Michal Szubski, proposed extending a link to the neighbouring Czech Republic to allow the gas to reach Poland from the Nabucco terminal at Baumgarten, Austria. The other big uncertainty surrounding Nabucco is financing. A recent EU pledge to provide ?200 million for the project is significant because it could pave the way for a ?2bn loan package from the European Development Bank.

On Wednesday, Emil Boc, the prime minister of Romania, one of the Nabucco transit countries, promised about ?417m of investment in the pipeline. Russia, which has the most to lose if Nabucco is built, has continued to cast doubt on the project. "If Nabucco gets gas then it means someone needs it," Dmitry Medvedev, the Russian president, said on Thursday. "But so far no one has been able to explain to me where the gas will come from."