Nabucco: Georgia’s Future or Damp Squib?

The signing of the accord on the Nabucco project by five transit countries has engendered frenzied discussion in top political circles worldwide. Although there is still long way to go before the pipeline is actually built, the signing is still seen as an important sign of Europe’s political and economic commitment to the project.

Nabucco had to repulse scepticism from its main opponent, Russia, which sees the project as a threat to its dominance of the energy market. After meeting German Chancellor Angela Merkel in Munich Russian President Medvedev cast doubts on the pipeline project. “If Nabucco gets gas, then it means someone needs it… But so far no one has been able to explain to me where the gas will come from,” Bloomberg quoted him as saying.

But the event aroused tremendous interest in the US which believes that control of energy supplies influences global affairs. “There is a striking overlap between the world’s sources of energy and the world’s sources of instability, and we need to take note of that carefully,” Chairman of the Senate Foreign Relations Committee, Democrat John Kerry Kerry, said as quoted by Voice of America.

If constructed the Nabucco pipeline will connect the Caspian region, the Middle East and Egypt to Austria, and through there the Central and Western European gas markets, via Turkey, Bulgaria, Romania, and Hungary. The pipeline will be approximately 3,300 km long, starting at the Georgian/Turkish and/or Iranian/Turkish border and finishing at Baumgarten in Austria.

The project is estimated to cost 7.9 billion euro. Near Erzurum, it will connect with the South Caucasus Pipeline, which will link Nabucco with the planned Trans-Caspian Gas Pipeline. Construction of the pipeline will begin in 2011 and it is planned to be operational in 2014.

Once completed, the Nabucco pipeline line will carry up to 31 billion cubic metres of gas a year from the Caspian and the Middle East. The project is being developed by Nabucco Gas Pipeline International GmbH. The shareholders of this company are OMV (Austria), MOL (Hungary) ,Transgaz (Romania), Bulgargaz (Bulgaria) ,BOTAŞ (Turkey) and RWE (Germany), all of whom have a 16.66% stake.

Azerbaijan, Turkmenistan, Kazakhstan, Uzbekistan, Iran and Iraq are seen as potential gas suppliers. However, the agreement signed two weeks ago between Russia and Azerbaijan in which the later agreed to sell its gas to Russia, is a move many understand as a threat to the completion of the Nabucco project. Hence Nabucco’s partners need to sort out their differences and look elsewhere for more stable suppliers.

However, Monday’s agreement in Ankara suggested Azerbaijan might not be backing away from the project. “If Nabucco is profitable from the economic point of view after its construction, we may supply Nabucco with gas. We have enough gas resources… It’s better for us to have access to more markets,” Azerbaijani President Ilham Aliyev said.

It is precisely the guaranteed market which will help Nabucco become a reality. “If Europe declares that it is ready to buy gas in big volumes any state, whether it is Azerbaijan, Uzbekistan, Turkmenistan or any other, will be ready to participate in the project as there is no better customer than Europe today,” Archil Gegeshidze, Senior Fellow at the Georgian Foundation for Strategic and International Studies, has told GT.

Although discussion of the Nabucco project started in 2004 the issue was highlighted again during Europe’s energy crisis in 2008-2009 when the EU gas security became a hostage to negotiations between Russia and Ukraine. The EU gets approximately 25% of its gas from Gazprom. Russia has the world’s largest gas reserves and is the largest producer and exporter.

Once completed, the Nabucco pipeline line will bring up to 31 billion cubic metres of gas a year from the Caspian and the Middle East. This is an alternative supply to the Russian one and meets 30% percent of Europe’s gas needs.

Georgia is looking at Nabucco project with much optimism. President Saakashvili also participated in Ankara summit on July 13.

“The struggle for Caspian gas is underway and this is a competition, a struggle for huge resources existing in Kazakhstan and Turkmenistan,” he said at the summit. “Of course, this is a competition and cooperation not only with the participation of European consumers, but also with the participation of China and Japan, and we should take all factors into consideration. With our arrival here today we express our support [to this project] not only by words; we have adopted many declarations in the past, but sometimes there was a sense that we were idle [on moving forward with this project],” Saakashvili said.

Georgia expects to receive gas on the 5+5 basis from Nabucco. This means Georgia will receive 5% of the natural gas transported via the pipeline free of charge and another 5% at a concessionary price. But Georgia will reap political benefits in addition to economic ones if the pipeline is constructed.

“Nabucco is significant for us in the same way the Baku-Supsa or Baku-Tbilisi-Ceyhan pipelines were,” says Archil Gegeshidze. “These projects have raised our value as a transit country. Besides, strategically and geopolitically our importance has boosted. Today as a result of Nabucco, which will meet EU energy security needs, Europe’s interest in Georgia will increase remarkably.”