Derek Brower: Nabucco realities

shah8.jpgThe discovery of more gas in Azerbaijan could be good news for the Nabucco project. But an agreement between OMV and Gazprom makes it irrelevant By Derek Brower THE BUREAUCRATS must be scratching their heads. Having long-trumpeted the Nabucco pipeline as a project central to the EU’s energy diversification strategy, they could be forgiven a smile when news from Azerbaijan arrived last week about a major new gas discovery in the Caspian Sea. As anyone who has watched the Nabucco saga over the past year knows, the pipeline’s biggest problem has been sourcing sufficient gas to fill it – and fulfil its promise to break Gazprom’s near monopoly on gas supplies to Central Europe.

OMV, the Austrian company that heads the consortium behind the pipeline, has repeatedly said that gas for Nabucco would come from the Caspian and Central Asia. Iran, Iraq and Egypt have all been tossed into the ring of potential exporters too.Each has its problems. Turkmenistan and Kazakhstan have the gas, but no infrastructure and little real enthusiasm to send it to Turkey, where Nabucco’s pipeline would gather its supplies. Iran and Iraq have plenty of gas, but remain off limits for well-known reasons. Egypt has some gas, but anything else it finds will either be “saved for our children”, as energy minister Sameh Fahmy puts it, or exported as LNG.That leaves Azerbaijan and, specifically, its Shah Deniz field. Until last week’s discovery, the field’s plateau production was forecast to be a maximum of 24bn cubic metres a year (cm/y). That would have supported exports, eventually, of some 16bn cm/y through the new South Caucasus Pipeline, which links the field with the Turkish border. After some of that had supplied Georgia and Turkey’s own market, the remainder would feed Nabucco or the other pipelines connecting Turkey with the EU.BP’s latest discovery could change that – and make much more gas available for export than originally forecast. The company says an entirely new reservoir, which lies several hundred metres beneath the existing producing one, could hold more gas than is being used now to supply Shah Deniz’s 8.6bn cm/y first phase of development. That could mean eventual production from Shah Deniz of over 32bn cm/y.That is good news for OMV, and should offer the firm an opportunity to answer some of its critics. Nabucco won’t be able to rely on Shah Deniz for all of its gas, but Azerbaijan’s potential share of capacity could now be much larger. OMV will need to find other supplies to make up the difference. But the Shah Deniz discovery eases some of the pressure.In theory, the planners in Brussels who have championed Nabucco for so long should also be pleased. Instead, a new problem has emerged at the other end of the pipeline that should worry them.OMV says Nabucco’s gas will end up in its terminus and storage tanks at Baumgarten. Earlier this year, Gazprom and OMV signed a preliminary agreement to develop Baumgarten. Now the two companies say they will sign a deal by December that will give Gazprom a 50% stake in Baumgarten. The Russian company says it will turn it into Europe’s largest gas hub.The logic for OMV is clear. It wishes to become a distributor for Russian gas in Europe and believes that close partnership with Gazprom will guarantee that. Its plans, outlined recently in Vienna, to turn Baumgarten into a European “stock market for gas” and a “one-stop-shop” hub for traders complement Gazprom’s own ambitious plans for Baumgarten.But those developments have big implications for Nabucco. Gazprom’s joint ownership of Baumgarten destroys the pipeline’s long-declared strategic purpose – to diversify Europe’s sources of natural gas. It won’t matter how much Caspian gas flows through OMV’s pipeline to Baumgarten, if the final destination is a gas hub controlled by Gazprom.It’s another triumph for Gazprom’s sound expansion policy in Europe. And another defeat for the planners in Brussels. Increasingly, the realities on the ground are making the bureaucrats’ visions for liberalisation and diversification look redundant and irrelevant.OMV will be blamed for undermining the EU’s energy security and, yet again, sticking a spanner into the Commision’s work to build a diversely supplied energy market. But OMV’s responsibilities are to its shareholders, not to the unfulfilled desires of EU commissioners.Indeed, the latest deal-making with Gazprom is more evidence of the chasm that exists between the strategic goals of the Commission and the commercial ambitions of companies like OMV. There is only one energy player on the European scene that combines long-term strategic goals and short-term commercial ambitions – and does it effectively, too. And Gazprom continues to be the determining force in EU energy politics.