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Turkish Delight: Nabucco Meets Reality

Right up there with swine achieving flight and hell freezing over, the probability that European bureaucrats would succeed in building the Nabucco natural gas pipeline was, at least up until a year ago, firmly placed in the realm of impossibility.

How things change.  Though nothing is yet guaranteed, on Monday officials from the five transit countries signed a formal agreement in Ankara, Turkey to proceed with the project, injecting fresh optimism into the initiative which could shatter Gazprom’s supply monopoly.

It’s one of those steps that moves Nabucco out of the possible column and into the probable column,” one energy analyst told CNN.  “My own guess is roughly by the end of the year, it will be pretty clear that Nabucco will be built.

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We’ve been covering the up-and-down progress of the Nabucco pipeline for several years on this blog, and it is with no small amount of surprise that I read a quote such as cited above.  To get to this stage, the project has overcome enormous political obstacles, such open attempts by Gazprom to protect its monopoly and derail the effort through pre-emptive contracts in places such as Azerbaijan and Turkmenistan, internal discord among EU members themselves, and simple financing reluctance.  Even with this agreement, the project still lacks firm gas supply contracts – giving the project an “if we build it, they come” attitude.  All these challenges were present even before the global financial crisis locked up the full of credit.

The project, which derives its name from the Verdi opera story of the Bablyonian king, will cost somewhere in the neighborhood of €9 billion, will stretch some 3,300 kilometers from Austria through Bulgaria, Romania, Hungary, and Turkey (see a map of the route here), and is planned to carry an annual capacity of 31 billion cubic meters of gas.  Of course no one is sure where that gas will come from exactly at this point, but the expectation that that the EU will be able to successfully woo both Baku (which will be likely to seek some strategic support after watching Russian tanks roll into neighboring Georgia) and Turkmenistan (as the leadership is a bit angry about Russia allegedly blowing up a pipeline).

There seem to have been two major changes over the past year which had pushed Nabucco from the unlikely into the probably column.  Some of the renewed momentum may be due to the appointment of Joschka Fischer, the former German foreign minister, to the board of the Nabucco project – providing notable comparisons with the position of Gerhard Schröder on the Nord Stream project.  However it is not clear that Fisher is being paid anything close to the 390,000 euros a year that Schröder gets for stumping Nord Stream (which of course was pushed through government back when he was serving as Chancellor).

John Vinocur at the New York Times has an excellent recent piece comparing Fischer and Schröder, describing the face-off as a wild west-like confrontation between the good sheriff and the villain. 

Lurking in a nearby saloon: Gerhard Schröder, the former SocialDemocratic chancellor and once Mr. Fischer’s boss, who now functions aspoint man in Germany for Gazprom, the Russian energy monopoly. Gazpromhas spiced the script with a plan to build a pipeline called SouthStream that’s clearly meant to thwart Nabucco, supported cautiously bythe European Union and the United States.

The second factor which has pushed Nabucco forward despite the lack of supply agreements has been the political blowback against Gazprom’s second gas war with Ukraine this past winter, which although was received somewhat more even handedly, still caused Russia to lose the support of many critical transit countries, such as Bulgaria (whose citizens protested in anger over the Russian action).  The cumulative impact of Russia’s open energy bullying has been a greater level of awareness and importance in Europe of their need to diversify away from Russian supply.

However the political unity of the EU on difficult issues such as energy has never been good, even in the best of times.  Furthermore, as the “rent-a-chancellor” has proven, Russia’s program of energy disaggregation and the promotion of bilateral rather than common treaties is still something to reckon with.  Large national champions in France, Germany, and Italy are eager to trade access to development opportunities in Russia in exchange for abandoning the Eastern EU members to the Russian sphere of influence.

As one editorial in the Financial Times frames it, it would certainly represent a break from the past if the EU got its act together on this one:  “The true test of Nabucco is whether Europe will finally stand togetheron energy. At the signing, one leader called for “more pragmatism” and”less geopolitics”. But in energy, geopolitics is something nopragmatist can ignore.