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Analysis: Europe's pipeline war

disclaimer: image is for illustration purposes only
by Stefan Nicola
Berlin (UPI) Feb 5, 2008
The European Union and Russia are battling over the future of a pipeline aimed at diversifying Europe's energy imports.

The so-called Nabucco pipeline, first planned in 2004, would transport natural gas to Austria from the Caspian region via Turkey, Bulgaria, Romania and Hungary. Stretching more than 2,000 miles, it will run from Erzurum, Turkey, to Baumgarten an der March, a major natural gas hub in Austria. Thus, Nabucco could be supplied with gas from Iran, Azerbaijan, Kazakhstan, Turkmenistan, Egypt and Syria.

The EU and the United States back the project because it represents a diversion from the current methods of importing natural gas solely from Russia.

Yet Russia has presented its own pipeline project: South Stream. The 550-mile, $15 billion South Stream pipeline would run under the Black Sea from Russia to Bulgaria, where it could branch off in several directions. The memorandum of understanding to build South Stream was signed in Rome in June 2007 by officials from Italy's Eni and Russia's Gazprom.

Since the beginning of the year, Russia has taken aggressive steps to have other partners join the South Stream project.

On Jan. 18, Bulgaria joined South Stream through its state-owned company Bulgargaz; European officials are especially irritated by the fact Bulgaria, a NATO and very recent EU member, received offers to join Nabucco but chose the Russian project instead. A week later, Serbia and Russia signed an agreement to route a northern branch of South Stream through Serbia. The accord also gave Gazprom a 51-percent stake in NIS, the Serbian oil monopolist, for an undisclosed price.

The pipeline, which is aimed at bringing Siberian gas to southern Europe, branches off in Bulgaria, with a southern spur supplying Greece and southern Italy and a northern branch running through Romania and Serbia toward northern Italy.

The project undermines the hopes for the prospective U.S.- and EU-backed Nabucco pipeline designed to ease Europe's reliance on Russia. Ever since Russia temporarily shut gas to Ukraine until it agreed to pay higher prices, Europe has been looking to diversify its energy imports. However, Nabucco has run into problems because Iran and Syria remain politically unstable, and the Central Asian countries have promised huge amounts of gas to China as well as Russia. Turkmenistan agreed to supply Gazprom with 50 billion cubic meters per year, along with a contract to build a pipeline to China, scheduled to go into operation in 2009, to provide 30 billion cubic meters annually. While Turkmenistan says it can provide the extra 30 billion cubic meters for Nabucco, observers have in the past doubted they can shoulder the export burden.

A senior Russian official said Wednesday in Berlin the latest deals with Bulgaria and Serbia and the limited gas in Central Asia render Nabucco a project without a future.

"This is the death of Nabucco," Duma Deputy Speaker Valery Yazev said last week in Berlin. "I don't think there will be gas left for another pipeline."

Europe, however, is not willing to surrender just yet.

"Nabucco is far away from being handed the final blow," Reinhard Mitschek, the head of the Nabucco consortium, told Austrian newspaper Die Presse. "Besides RWE, further interested parties are knocking at our doors. They want to join the project because it has a lot of future potential," he said.

Nabucco, held by Romania's Transgaz, Bulgaria's Bulgargaz, Austria's OMV, Turkey's Botas and MOL, on Tuesday took on a sixth partner, Germany's RWE, forming a powerful team that may be joined soon by France's Gaz de France.

"We believe that both RWE and Gaz de France represent a high additional value to the Nabucco project that proved its need for very strong economic and political support from the European companies and governments," Benjamin Lakatos, director of MOL Gas Midstream, said in a statement.

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