Rescuing Nabucco

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An optimistic assessment of the Nabucco project would be that it is in deep trouble. A more realistic view on this 3,300-kilometer pipeline, which is supposed to run across Turkey and then traverse the Balkans before arriving to Austria, would be that only a miracle can still save it. This ambitious undertaking, which constitutes the key element in the European Union strategy of diversifying energy sources and reducing gas dependency on Russia, has run into great many problems from the very start. Now the spiraling global crisis reduces its feasibility to a slim chance.

Firm support in the EU Commission and relentless advocacy from Energy Commissioner Andris Piebalgs cannot quite erase the fact that Nabucco is neither a commercially viable nor a "common-good" project. Even in the recent period of sky-high oil prices, none of the European energy majors saw this enterprise as potentially profitable. Thus, the consortium of six interested parties led by Austrian OMV can get only symbolically significant credits from the European Bank for Reconstruction and Development and the European Investment Bank. At the same time, the usefulness of this medium-capacity pipeline for European energy security is called into question by major consumers -- above all Germany, which sees Russia as an irreplaceable partner.

Piebalgs believes that the unique advantage of Nabucco is that it will tap into "nontraditional sources" of energy, but more impartial observers cannot fail to notice that none of these sources looks reliable. The Shah Deniz gas field in Azerbaijan developed by BP and StatoilHydro has the potential beyond covering domestic demand, supplying Georgia's needs and guaranteeing the "gasification" of eastern Turkey, but the extra volume is very small. The greatest hope of Nabucco enthusiasts has been securing the huge gas supplies from Turkmenistan, but China has laid solid claim on green fields on the right bank of Turkmenistan's Amu Darya River, and Russia is driving relentlessly forward Gazprom's plans for new drilling and pipelines.

The desperate situation with gas supplies has prompted some European experts to suggest that Russia should be offered a stake in the project so that some of the gas pumped through the Blue Stream pipeline, which transports Russian gas to Turkey via the Black Sea, could travel to the EU market. Such an option is rejected on ideological grounds by the majority of those supporting diverse energy sources; they argue that any involvement of Gazprom would undermine the Nabucco project. From its side, Russia would hardly support this idea. Gazprom insists on its total commitment to the South Stream project, which transports Russian gas to Bulgaria and onward to other European countries via the Black Sea, even if the cost calculation has climbed to as high as 26 billion euros ($34 billion).

It is quite interesting in this respect that Prime Minister Vladimir Putin mentioned at a recent news conference with Hungarian Prime Minister Ferenc Gyurcsany that EU- and U.S.-backed Nabucco -- which Putin sees as a main competitor to Russia's Nord, South and Blue Stream pipelines -- would make little sense without Iran supplying the gas. Putin takes Gazprom's interests close to heart, and the main point of that meeting was to sign the deal on the Hungarian section of South Stream.

On paper, Iran's participation in Nabucco makes plenty of practical sense. Iran has the largest natural gas reserves in the world after Russia, but its production is lagging far behind because of underinvestment. Iran's gas fields, in particular the giant South Pars, are far more accessible than the offshore Shtokman field in the Barents Sea or the remote Bovanenkovskoe field in the permanently frozen Yamal Peninsula. Many European companies, including Total and StatoilHydro, are eager to resume projects in Iran, and China is gradually increasing its stakes. If Iranian gas starts getting pumped into new pipelines, the whole picture of global gas balance would change, and Europe stands to benefit from that.

This perspective, however, remains blocked by a huge obstacle: Iran's nuclear program. International sanctions organized by the United Nations are not that strict, but the unilateral sanctions imposed by the United States are damaging -- something even Gazprom cannot ignore. U.S. President Barack Obama has expressed readiness to talk with Iran, which is certainly a big improvement, but it is rather unlikely that he will be able to talk Iran out of completing its uranium enrichment cycle. Therefore, the deadlock is bound to continue, and the new ultrahawkish government that is been formed in Israel will make sure that a military option remains on the table.

Propositions about a flow of Iranian gas to Europe in this situation only serve the purpose of further compromising the Nabucco project. That does not mean, however, that South Stream is set to win the pipeline tug of war. Supply sources are not a problem for South Stream. (Putin said in his news conference with Gyurcsany that Russia's gas supplies are sufficient for at least 100 years.) Moscow wants to simply bypass Ukraine by redirecting a portion of its gas under the Black Sea. Financing might be more of an issue, but the bigger problem is that this pipeline has to go through either Turkish or Ukrainian exclusive economic zones in the Black Sea, and neither is willing to grant permission.

One costly but workable way around this problem is to combine South Stream with the second pipe of Blue Stream. If this is done, Turkey will receive an extra 16 billion cubic meters of Russian gas, which it can mix with the flow from Shah Deniz and export to Europe through the rescued Nabucco. Ukraine stands to lose more than transit fees as its ability to control the exports of as much as 75 percent of Russian gas to Europe will be cut in half. This would indeed be a welcome development for most European consumers.

Pavel K. Baev is a research professor at the International Peace Research Institute in Oslo.