By John Helmer in Moscow
Through the Nabucco pipeline project, Bulgaria decides to reap the benefit of Europe’s energy demand.
The fat lady has finally sung — the operatically named Nabucco gas pipeline project, intended to carry Central Asian gas to European markets, avoiding Russia, appears to have been knocked out by an agreement between Bulgaria, Russia, and Italy’s ENI.
Negotiated on Thursday and Friday in Sofia, the Bulgarian capital, by President Vladimir Putin and Bulgarian President Georgi Parvanov, the deal means that “Bulgaria has become a key link in the European energy chain,” Putin announced. Parvanov said: “Bulgaria has always suffered from its strategic location, and the time has comer to reap the South Stream, a new 900-km gas pipeline to be supplied by Gazprom, Russia’s natural gas producer, is to be built under Black Sea, and make land on the Bulgarian coast. From there, the pipeline will fork, delivering gas estimated at 30 billion cubic metres per annum southwards to Italy and Greece, and northwestwards to Hungary, Czech Republic, and Austria.
Austria and Turkey have previously proposed an alternative pipeline, route and feedstock, backed by Washington and Burssels. It is unclear why a gas export pipeline, intended to run from Turkmenistan and Kazakhstan on the eastern shore of the Caspian Sea, across the seabed, and then through several Caucasus and Balkan states, to Vienna, should be named after Nabucco, the Verdi opera of 1842.
Also, from curtain up, Nabucco faced the logistic and legal, possibly military, problem, of building a pipeline under the Caspian Sea, in the face of likely Russian and Iranian vetoes, and the naval squadrons to enforce them.
Russia and Iran can veto any pipeline laid on the seabed of the Caspian, because this body of water — once an internal lake of the Soviet Union, regulated by treaty with Iran — has not been re-regulated by a definitive agreement of all littoral states. Each has taken a disputable body of water and seabed for a national economic zone — that means for oil and gas drilling. There has been no agreement at all on the international body of water in the middle. On the surface, the Iranian and Russian navies patrol, outnumbering and outgunning the boats the US has been supplying Azerbaijan, which is the least reliable of all the friends the Bush administration thinks it has made in the region.
Then there has been the problem of the feedstock, for Putin has negotiated the agreement of both Kazakhstan and Turkmenistan to commit their gas to a northward pipeline network, along the Caspian coast, to join the Russian trunk-line headed for the Black Sea.
In May, when Putin did his deal with Kazakhstan and Turkmenistan, he described the expansion of the Caspian shore system: “this is an old pipeline, it was inactive, and our colleagues in Turkmenistan asked us to begin using it again. And we are now pumping 4.2 billion cubic metres through the pipeline and will be able to pump 10.5 billion. We must rebuild it; we will do so as soon as possible and build a new branch. And therefore by 2012 there will be at least an additional 20 billion.”
This is still short of the Central Asian ambition to pump more, and of the initial capacity of Southstream to pump 30 billion.
OMV, the Austrian state oil and gas group, is the Nabucco coordinator; its plan calls for a pipeline of 3,300 kilometres, with delivery capacity of 31 billion cm per year. Russia, Kazakhstan, and Turkmenistan have also agreed on a second, new gas pipeline with initial capacity of 10 billion cm. This should be operational by 2009. Together, there will be export capacity of 90 billion cm.
ENI’s Chief Executive Paolo Scaroni also attended last week’s Sofia negotiations with his Gazprom counterpart, Alexei Miller. ENI and Gazprom have agreed to form a 50/50 joint venture to do the feasibility studies for the project, whose initial cost estimate is $15 billion. “The facts that Bulgaria is now an EU country and Italy’s ENI is a 50% owner in the project make it very difficult in our opinion for the EU to surface any reactions to this new project, “commented Moscow’s MDM Bank.
The most important fact for Bulgaria — one that cemented the deal in last-minute talks between Putin and Parvanov that reportedly took place at the Sinatra piano bar, in downtown Sofia — is that Russia has agreed to cede a full 50% ownership of the pipeline project to Bulgaria.
When a Bulgarian reporter suggested at the Sofia presidential press conference that South Stream might get stuck in Bulgarian territory, if it did not find enough support in Europe, Putin said European countries were fighting to join Russian gas pipeline projects. “We don’t have to convince anybody,” he said. “They ask us for [gas] every day, especially during the fall and winter.”
Currently, Russia buys Turkmenistan’s entire annual gas production at $100 per million cm, which Gazprom then exports to Europe at higher prices.
A year ago, Turkmenistan had been negative towards the Nabucco plan; then between the death of one president, and the inauguration of his successor, it sounded more positive. But this looks to have been a ploy to pressure Putin into offering more favourable pricing terms. Turkmenistan wants to lift its annual gas output to 100 billion cm; it currently exports 50 billion cm through Russia. Kazakhstan produced 27 billion cm of gas in 2006, and exported 8 billion cm; it is targeting an increase in production by 2015 to 36 billion cm, with export volume of 25 billion cm.
Most Kazakh gas exports currently go to Russia, where they are processed at a Gazprom plant in Astrakhan, on Russia’s Caspian shore. Gazprom is expanding capacity at the plant to accommodate an increase of Kazakh shipments to 15 billion cm annually.