THE HANDSTAND |
FEBRUARY-MARCH2010
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is the nabucco
pipeline worth the
projected $11.4 billion?
(Please Refer to previous to
two Articles in July 2009 Issue of The Handstand, JB,Editor)
January 5, 2010
This is a guest post by Dr. John C.K. Daly
Inside Beltwayistan, a number of Bushevik oil patch
zombies still roam the recession-blasted landscape
mindlessly chanting their Caspian mantra, Happiness
is multiple pipelines with the caveat that
they flow westwards and bypass both Russia and Iran.
Theyve now added a new word to their vocabulary,
Nabucco, and worse, have bitten a number of
Obama administration officials and visiting European
politicians, who have joined their shuffling ranks.
Their thinking remains somewhat clouded by primordial
memories of Bushs fuzzy math, as the
statistics about Nabucco are contradictory, to say the
least. State Oil Company of the Azerbaijani Republic (SOCAR)
vice president Elshad Nasirov is now threatening to start
selling Azerbaijans natural gas, currently
Nabuccos sole projected provider of throughput, to
Asian countries if Europe further postpones
Nabuccos construction.
Construction of the 56-inch, 2,050-mile pipeline,
first proposed in 2002, is tentatively slated to begin
next year and scheduled for completion by 2014. At a cost
initially estimated at $11.4 billion and rising, Nabucco
will be the most expensive pipeline ever built, more than
three times the cost of the 1,092-mile Baku-Tbilisi-Ceyhan
(BTC) oil pipeline. Raising such a significant sum in a
time of global recession would be an article of faith at
best.
Even assuming that Nabuccos boosters manage to
assemble a coterie of deep-pocketed suckers er,
investors, the only promised current volume for
Nabuccos proposed 31 billion cubic meters (bcm)
annual throughput is Azerbaijans future offshore
Caspian Shah Deniz production, estimated at 8 bcm. Even
if Shah Deniz does end up supplying Nabucco, its
currently promised throughput leaves a deficit of 23 bcm,
leading to the question of exactly whose natural gas will
Nabucco carry if SOCAR drops out, a worst case scenario
requiring the Nabucco consortium to scrounge not 23 bcm,
but all 31 bcm per annum, especially as Washingtons
geopolitics invalidate the participation of either Russia
or Iran?
For those with knowledge of energy history in the post-Soviet
space, the 419-mile, $500 million Odessa-Brody oil
pipeline, completed in 2001, provides a cautionary tale
to building pipelines without throughput guarantees. The
Ukrainian government rashly built the self-financed line
without foreign investment, stretching from its Black Sea
port to the Polish border to provide Central Europe with
oil despite not having firm commitments from a single oil
producing nation for export throughputs. After the
pipeline remained unused for three years, a reluctant
Kiev was forced in 2004 to agree to transport Russian oil
southwards in the opposite direction, for export from
Odessa rather than northwards to Central European markets
as originally envisaged.
Further complicating the picture are the differing
proposed transit and pricing policies of the countries
that Nabucco will pass through. The biggest geographical
hurdle impacting the bottom line is the fact that, if as
some Nabucco boosters aver, Turkmenistan can be persuaded
to contribute natural gas, the seabed of the Caspian has
yet to definitively be delineated amongst the seas
five riparian states. The question remains unresolved 18
years after the implosion of the USSR dashed the 1920 and
1941 Soviet-Iranian bilateral treaties covering the issue
of offshore waters. Building a pipeline across seabed
whose ownership is in dispute will enrich maritime
lawyers, but few others.
The issue of competing claims over Caspian national
waters and seabed is hardly a pedantic exercise. In July
2001 Iran dispatched military aircraft and a warship to
intimidate two Azerbaijani survey vessels contracted by
BP to leave the Alov-Araz-Sharg field, a site that
Azerbaijan claimed was well within its national sector,
but disputed by Iran. It seems unlikely Russia and Iran
would stand idly by as trans-Caspian sub-sea pipelines,
which exclude them, are constructed.
Hopes of Turkmen gas filling Nabuccos gas
deficits are yet more wishful thinking. Last month the
Central AsiaChina gas pipeline connecting
Turkmenistans Caspian shore natural gas fields to
Xinjiang was inaugurated in the presence Chinese
President Hu Jintao, Turkmenistans Gurbanguly
Berdymukhamedov, Kazakhstans Nursultan Nazarbayev
and Uzbekistans Islam Karimov. This year 13 bcm are
scheduled to transit the new pipeline, rising to 30 bcm
by the end of 2011 and over 40 bcm by 2013, effectively
soaking up Turkmenistans projected natural gas
increases for the foreseeable future. Any further gas
from Kazakhstan, an even more distant proposition, would
face the same geographical constraints as regards the
Caspian, while Gazprom also soaks up its surplus natural
gas production.
Which leaves any but the most deluded Eurocrats and
Beltwayistan apparatchiks with an uncomfortable
fuzzy math question which of the five
Caspian riparian states of Azerbaijan, Iran, Kazakhstan,
Russia and Turkmenistan are going to provide
Nabuccos projected 31 bcm annual throughput?
But never mind driving Nabucco is a complex
skein of greed, European foreign policy agendas and the
ongoing belief, a delusional legacy of the Bush
administration, that somehow Caspian energy
belongs to the West, and furthermore, that
both Russia and Iran will complacently stand back while
Western capitalism pulls off another energy initiative
dwarfing BTC.
European interest in Nabucco is underpinned by the
unpleasant realization that since 1991 it has become more
and more dependent upon Russia for natural gas imports,
with Russias state monopoly Gazprom now supplying
40% of Europes imports. As Moscow still largely
relies on its Eastern European Soviet-era pipeline
network, the annual winter spats between Moscow and Kiev
over payment rates and transit have deeply traumatized
Brussels to conduct a frantic search for alternatives in
a desperate attempt to achieve energy security. Nabucco
is designed to carry Caspian and Central Asian natural
gas via Turkey and the Balkan states to Austria while
bypassing both Russia and Ukraine.
A situation that can only worsen with time, as the
EUs European Commission projects that the EUs
gas consumption will increase by as much as 61 percent
from its current level of 502 bcm to 815 bcm by 2030.
The hard sell has now begun over Nabucco thus
represents the answer to Eurocrats prayers.
Nabuccos consortium shareholders are Austrias
OMV, Hungarys MOL, Bulgarias Bulgargaz,
Romanias Transgaz, Turkeys Botas and
Germanys RWE with 16.7 percent apiece. Notably,
none of the countries involved has any significant
natural gas production of their own.
If Nabucco is to succeed, there is one potential
supplier that could step into the supply void, but for
Washington, it is a country too far Iran. Iran
contains 16 percent of the worlds natural gas
reserves, second only to Russia. Washington has clearly
and repeatedly stated its opposition to including Iran in
Nabucco, as last month U.S. Special Envoy for Eurasian
Energy Richard Morningstar stated, We have been
constantly saying that, in our opinion, Iran is not in a
position to become a part of any new projects in the
Southern Corridor.
In response, speaking after a Dec. 8 Iran-UAE joint
economic commission meeting in Tehran, Irans
Foreign Minister Manouchehr Mottaki bitingly observed,
We have never heard that Europeans have entrusted
the Americans with their authority to decide on the
pipeline. Motakki then added a blunt dose of
reality, stating, Speaking about the Nabucco
pipeline without Irans participation would amount
to nothing but a pipeline void of gas.
Mottakis comments echoed those of Russian Prime
Minister Vladimir Putin, who said in March that Nabucco
was not feasible without Iranian participation.
Nabucco also has its local critics. Azeri political
scientist Ilgar Velizade has noted that Nabuccos
high cost, now estimated at $11.8-13.1 billion, is simply
untenable in the context of the current global financial
crisis. Velizade consequently believes that the less
expensive Poseidon pipeline option, which would deliver
natural gas to Italy from Shah Deniz, could be as
important for Europe, Azerbaijan and Turkey as Nabucco.
Are the Azeris serious, or are they just bluffing,
hoping to stampede a tidal wave of investment cash into
Nabucco? Hedging its bets, Baku is already exploring
alternative markets for its gas. On Dec. 26 SOCAR
President Rovnag Abdullayev said that while under the
terms of an Oct. 14 contract under whose terms Azerbaijan
was to supply 500 million cubic meters (mcm) of gas to
Russia beginning Jan. 1, his company would now double the
amount to 1 bcm. While this represents a fraction of that
promised to Nabucco, Gazprom has already indicated that
it will happily purchase any increases in Azeri natural
gas production at world prices.
Nabucco remains stoked by the increasingly passé
ideological concerns of a Bush-era administrative legacy
promoting pipelines bypassing both Russia and Iran
further fuelled by Brussels fears of ongoing
Ukrainian-Russian pricing spats disrupting deliveries as
in years past. In the meantime, Moscow undoubtedly will
press forward with its Nord Stream and South Stream gas
pipelines alternatives in an attempt to reassure Europe
that Russian pipelines bypassing Ukraine will alleviate
future concerns about energy security.
The zombies have gotten their wish Caspian
energy now indeed does flow through new multiple
pipelines. The only problem for the wizards of Wall
Street and the City is that they now flow mostly
eastwards, to China. As for Nabucco, what is Azeri for
expensive white elephant, son of Odessa-Brody?
This article was written by Dr. John C.K. Daly for
OilPrice.com who focus on Fossil Fuels, Alternative
Energy, Metals, Oil Prices and Geopolitics.
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