Curtains for Nabucco, or Only Intermissions?
Energy Brief
16th January 2012

With the Trans Anatolian Gas Pipeline (TANAP) and the South East Europe Pipeline (SEEP) now on the table as proposals through which to convey Azerbaijan’s Shah Deniz Stage 2 (SD2) gas across Turkey to Europe, the question has to be: is there, could there be a chance for the Nabucco gas pipeline to remain as the core of the Southern Corridor?
Complicating the situation further is the agreement between Turkey and Russia that allows the latter to build the uber-expensive South Stream gas pipeline across the Black Sea. For concessions on prices and the take-or-pay factor, Ankara gave Moscow the go-ahead on a right-of-way through Turkey’s offshore territory. The jury is still out as to whether Ankara’s decision will prove to be to its benefit in its quest to be the prime conveyor of gas to Southern Europe.
While it has seemed like a good idea all along, Nabucco faces a bigger challenge now from TANAP and SEEP than it ever did from South Stream, which with a planned capacity of 63 billion cubic meters/year (bcm/y) was designed to supersede Nabucco at every opportunity. With a design capacity of 31 bcm/y, Nabucco was deemed too large for viability with only 10 bcm/y of SD2 gas available for transport to Europe. With sanctions putting Iran out of the picture as a source of gas supply to Europe, Nabucco consortium members OMV, MOL and RWE turned to Iraqi Kurdistan as another source to fill the pipeline.
To make the pipeline more attractive, Nabucco partners proposed extending the pipeline as far east as Baku and further west into Central Europe. The extension to Baku was mindful of Nabucco’s real goal–gas supplies from Turkmenistan. But without a deal to build the long-elusive Trans-Caspian Gas Pipeline (TCGP), which is strongly opposed by Russia and Iran on both political grounds and for reasons of gas market competition, shipments of Turkmen gas through Nabucco will not happen.
At this point it appears that only a China-like deal that would send 30 bcm/y of Turkmen gas through Nabucco to Europe would put the project back on its feet. The European Union last September sanctioned the effort to negotiate a “legally binding treaty” between it, Azerbaijan and Turkmenistan for the construction of the TCGP, but there has been no report of progress.
Throughout its existence, Nabucco has sought to cross all the ‘t’s and dot all the ‘i’s. It has all its intergovernmental agreements in place, and while the cost of the project now probably goes well beyond the original €7.9 billion, it is still probably a bargain compared to South Stream, which is being estimated by the media at €25-30 billion. Russia must be asking itself just how much gas it is going to have to sell in order to cover the cost of maintaining a firm hand on the European market with its Black Sea pipeline