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Europe's Plan For Alternative Pipeline Faces Big Problems

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  • Europe's Plan For Alternative Pipeline Faces Big Problems

    EUROPE'S PLAN FOR ALTERNATIVE PIPELINE FACES BIG PROBLEMS
    Ian Traynor in Vienna

    The Guardian
    Wednesday 7 January 2009

    With its vast underground storage tanks and network of pipes, valves
    and tubes, Baumgarten in the flatlands east of Vienna is one of
    Europe's biggest gas hubs. The first gas to cross the iron curtain
    was pumped through thousands of miles of pipelines from Siberia and
    into western Europe 40 years ago, arriving at Baumgarten for resupply
    across the continent. The hub remains the most important junction
    today, matching Russia's huge mineral riches to Europe's gargantuan
    appetite for natural gas. But a new energy revolution is being plotted.

    With the Kremlin and the giant Russian gas monopoly, Gazprom, locked in
    their annual spat with Ukraine, the main transit country for Europe's
    gas supplies, over prices and politics, Europe is desperately seeking
    ways to diminish its dependence on the 140bcm (billion cubic metres)
    of gas it currently imports from Russia. The most favoured, most
    ambitious and most contentious idea is to build a new pipeline beyond
    the grip of Gazprom, which controls 90,000 miles of gas delivery
    systems. Named after a Verdi opera, the Nabucco pipeline is supposed
    to terminate at Baumgarten, ultimately pumping 31bcm of Caspian gas
    through Turkey and the Balkans to Austria. "Diversification on the
    terrestrial route for gas is a must for Europe," says Alexandr Vondra,
    deputy prime minister of the Czech Republic, which has taken on the
    EU presidency and sees energy policy as a priority.

    The plan, born in 2002, is to thread almost 2,400 miles of pipeline
    through the narrow geostrategic stretch between Russia and Iran, the
    two countries with the world's largest reserves of gas, to central
    Europe. "If we have a dominant company like Gazprom trying to influence
    all inroads of gas to Europe, we need to develop an alternative to
    the supply of gas from Russia," says a senior European commission
    official involved in energy policy. Given the worsening fallout from
    the Russia-Ukraine dispute as well as the impact of last August's
    Russia-Georgia war on Caspian energy security, the Europeans are
    trying to accelerate the Nabucco plans.

    "We have good reason to believe that Nabucco will fly," says Reinhard
    Mitschek, who manages the Nabucco consortium of six national energy
    companies from the 21st floor of an office block above the Danube
    in Vienna.

    But the problems are formidable. European gas industry sources
    complain that EU officials are confusing political imperatives with
    economic, business and energy fundamentals. "This is an attempt
    at reverse engineering in pipeline development," said a senior
    industry source. "Usually you find the resource and then you build
    a pipeline. With Nabucco it's the other way round."

    Pierre NoÃ"l, energy analyst at the European Council on Foreign
    Relations, says: "This is a pr oject that does not exist except in
    the minds of Brussels bureaucrats. They think you can build a pipeline
    and then the gas will flow. It's simply not credible."

    Brussels has already spent millions on feasibility studies for a
    pipeline that will consume more than 2m tonnes of steel and comprise
    some 220,000 lengths of pipe from Turkey's eastern border through
    Bulgaria, Romania, and Hungary into Baumgarten on Austria's border
    with Slovakia.The cost is â~B¬8bn (£7.2bn) and rising. Construction
    was supposed to start last year, then this year, now next year.

    Last summer Mitschek ordered a survey of gas shippers and said the
    results showed interest in pumping 16bcm through Nabucco, half the
    total capacity but ample to get the pipeline operating.

    The industry source said there was nowhere near enough to make Nabucco
    viable. "The most important issue regarding this project is to obtain
    enough gas," the Turkish president, Abdullah Gul, said last month. The
    first target for gas to fill the pipeline is Azerbaijan, whose Caspian
    field Shah Deniz II should come onstream around 2013, when Nabucco
    is due to start pumping. "This gas is expected from Azerbaijan,"
    says Mitschek of the 8bcm, or quarter of the pipeline's capacity,
    needed to start Nabucco operations.

    But Gazprom is competing fiercely for the Azerbaijani prize in a
    bidding war with the Europeans, offering above- market prices for the
    gas while the Kremlin dangles20the political carrot of arranging the
    return of the disputed enclave of Nagorno-Karabakh to Baku's control.

    "The Russians have offered a deal," says Elmar Mammadyarov,
    Azerbaijan's foreign minister. "But there are different options on
    the table. At the end of the story, it's our gas."

    A recent western audit of Turkmenistan's gas reserves cheered officials
    in Brussels by confirming a doubling of the known resources. But
    experts caution that it will be 20 years before sufficient Turkmen
    gas can be pumped for Europe to evade Gazprom's control. Similar
    calculations apply to aims of filling Nabucco with gas from Iraq or
    Iran, were there to be major political change in Tehran. Compounding
    the problems is Turkey and its worsening relationship with the EU. Well
    over half the proposed pipeline is to be located in Turkey.

    Brussels is attempting to negotiate an agreement making Turkey the main
    transit country for Caspian gas to Europe. The Turks are insisting
    on 15% of the gas at discounted prices, a demand that would wreck
    Nabucco financially, say officials in Brussels.

    --Boundary_(ID_7Y4Y3wF56C9cHbs9RuL9TA)- -
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