A Lifeline for Nabucco? EU Cuts New Gas Deal with Azerbaijan

The European Union on Thursday signed a major gas deal with Azerbaijan, part of the bloc's efforts to wean itself from dependency on energy from Russia. Many hope the deal will save the EU-backed Nabucco pipeline project -- but Azerbaijan holds the trump card.
The European Union is hoping that a new gas deal with Azerbaijan could save its planned Nabucco pipeline through Turkey. The image shows a pipeline currently under construction in Germany.

The European Union is hoping that a new gas deal with Azerbaijan could save its planned Nabucco pipeline through Turkey. The image shows a pipeline currently under construction in Germany.

Foto: Sean Gallup/ Getty Images

Many would argue that Europe is doing things backwards. In its eagerness to free itself from reliance on Russian natural gas,  the continent is preparing to pour $10.5 billion into the construction of a southern pipeline leading from the Caspian Sea region through Turkey to south-eastern Europe.

So far, though, the European Union has struggled to line up potential suppliers. With several other pipelines taking shape in the so-called Southern Corridor, competition is fierce -- and there is concern that the EU's Nabucco pipeline could operate far below its capacity of 31 billion cubic meters per year, even if it opens on schedule in 2015.

This week European Commission President Jose Manuel Barroso and Energy Commissioner Günther Oettinger are in the region to ward off that disappointment. And on Thursday they secured a deal which could help make Nabucco a reality.

The deal signed Thursday between the EU and Azerbaijan is for "substantial volumes of gas" from the Caspian country's Shah Deniz II gas field. While specifics were not made public, the Azerbaijanis promised that the volume would be sufficient to make the Southern Corridor a viable route.

A Hitch

"This is a major breakthrough," Barosso said in a statement. "This new supply route will enhance the energy security of European consumers and businesses."

But there is a hitch. Azerbaijan has not yet decided which of the several competing pipeline plans meant for the Southern Corridor will receive the lucrative contract. In addition to Nabucco, there are two smaller pipelines in the works, including the Trans Adriatic Pipeline (TAP) and the ITGI pipeline, both of which would use existing lines in Turkey before transporting gas onward to Italy. Nabucco would route supplies through Bulgaria and Romania. In early December, Azerbaijan reached an agreement with Italy, Greece and Turkey -- on the ITGI pipeline.

Russian gas giant Gazprom is also planning a "South Stream" pipeline, which would carry Russian gas along much the same route as Nabucco. Gazprom has been careful not to portray South Stream as a competitor to Nabucco, with Gazprom CEO Alexei Miller telling SPIEGEL earlier this month,  "If the Europeans want a Nabucco pipeline, they should build it. We have nothing against the idea. Nabucco is their problem. Our job is to deliver our gas to our customers as stipulated in our contracts."

'Not Really Groundbreaking'

The EU has in recent years heavily touted the Nabucco project, which includes the German energy giant RWE among its backers. The 3,000-kilometer line would also run through Turkey on the way to its endpoint in Austria; it would add to capacity already in place in Turkey.

The European Union hopes Azerbaijan will make a decision by March, when a package of €200 million in EU support is set to expire in the absence of investor interest. On Thursday, Energy Commission spokeswoman Marlene Holzner appeared to soft-pedal EU support for Nabucco, telling the Associated Press only that "for the EU, it is decisive that a European project and a European firm gets awarded this contract." Both TAP and ITGI have European backers.

On Friday, Barroso and Oettinger were scheduled to continue on to Turkmenistan in their search for gas. But analysts were playing down Thursday's deal. Alexandros Petersen, a Eurasia expert at the Atlantic Council in Washington, told the AP the agreement "is not really groundbreaking. The real story is what project of the Southern Corridor the Azerbaijanis are going to pick."

cgh -- with wire reports
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