Tuesday

2nd Jun 2020

EU-backed Nabucco to receive legal certainty

  • Nabucco could supply up to 5-10% of the EU's gas demand, the European Commission says (Photo: eastpole)

The Nabucco project, designed to cut the dependence of energy-hungry Europe on Russian gas, will reach an important milestone later today (13 July) as EU governments and Turkey are set to sign a key transit pact.

"The signature will show that we are determined to make the Nabucco pipeline a reality as quickly as possible," European Commission chief Jose Manuel Barroso said ahead of the signing ceremony, which would effectively end six months of intense negotiations on the use of the pipeline.

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The 3,300-kilometer pipeline is expected to run between the Caspian Sea region and Austria, crossing Turkey, Bulgaria, Romania and Hungary.

Ankara, for its part, wanted to take 15 percent of the gas flowing through Nabucco at a discounted price for internal consumption or even for re-exportation, but was not granted this.

The Nabucco's entire capacity amounts to 31 billion cubic metres of natural gas per year.

"The [EU-Turkey] agreement is a very significant one," says Karel Hirman, an energy expert from the Slovak innovation and energy agency. "Turkey sought to become a gas dealer, while this agreement will make it a regular transit country profiting from transit fees."

Once the basic legal pact is sealed, companies keen to use the Nabucco pipeline can bid for its capacity by signing contracts with the Nabucco Gas Pipeline International, a consortium consisting of gas companies from the five countries concerned plus Germany's energy giant RWE.

"Things have to be done step by step," the European Commission energy spokesperson Ferran Taradellas Espuny said, explaining that "once the gas is contracted, then you start building the pipeline."

Brussels has put aside €200 million from EU coffers as a "little carrot" for companies to begin construction work as quickly as possible. The incentive is part of the bloc's €5 billion recovery package and so needs to be spent in 2009 and 2010 in order to boost the ailing European economy.

"The Nabucco International Company has to make a proposal of how it intends to spend the money before 15 July," the commission spokesperson said.

Construction is expected to begin in 2011, with the €7.9 billion project possibly up and running by 2015. However, its success hangs by a thin thread, being highly dependent on whether a sufficient number of countries commit themselves to put gas into the Nabucco pipe.

The EU's executive body has put its biggest hopes on Azerbaijan. The country, with proven natural gas reserves of some 850 billion cubic metres, is seen as Nabucco's first source of gas.

In addition, Turkmenistan's president Gurbanguly Berdymukhamedov on Friday (10 July) said that Ashgabat had "a surplus of natural gas available to foreign customers, including the Nabucco pipeline."

Iraq, Egypt and even Iran at a later stage are also seen as potential suppliers, with the commission's Ferran Taradellas Espuny arguing that "the European market, including price conditions, is extremely attractive for gas producers in the region."

But Karel Hirman, a Slovak-based energy expert, pointed to possible competitors such as Russia and China.

"China has intensified efforts to be present in Central Asia," Mr Hirman said, pointing to a pipeline between the Asian tiger and Turkmenistan that should be operational from next year.

The EU-backed Nabucco project gained fresh momentum after Russia at the beginning of the year turned off its gas taps, leaving Ukraine and a number of European customers stranded.

Bulgaria and Slovakia - entirely reliant on Russian supplies - were most affected, with Bratislava claiming the economic damage amounted to some 0.5 percent of the country's gross domestic product.

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