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Monday, September 15, 2008

Europe Looks around Russia for Gas

// The war in Georgia hastens construction of Nabucco
Sep. 15, 2008 - Kommersant by Natalia Grib, Alexander Gabuev - Since the war in Georgia, the search has heated up for energy sources and routes to transport them on without passing through Russia. Last weekend, leaders of Eastern European countries called on Europe to end its dependency on Russian energy sources, and the European Union made an important step in that direction when Greece reached an agreement on the direct supply of Azerbaijani natural gas to Europe, Baku and Ashgabat gave their support to the Nabucco pipeline and Hungary announced a forum to finalize that project, which would deliver gas while bypassing Russia. Thus, after the war, even Russia’s South Stream partners, such as Greece and Hungary, are willing to work on competing projects. Greetings from Budapest – The main topic of the summit of presidents of Poland, the Czech Republic, Slovakia and Hungary that took place this weekend in the small town of Piestany, Slovakia, was the EU’s dependency on Russian energy sources and the need to diversify supply sources. “The EU must overcome its dependency on Russian hydrocarbons immediately,” Polish President Lech Kaczynski declared. “However, the situation in Georgia complicates that decision. The goal of Russia’s actions was to complicate it even more.” That is the same conclusion reached by heads of EU member states at an emergency summit on September 1 in Brussels devoted to the war in the Caucasus. In the resolution passed by the summit condemning the Russian military operation against Georgia is a clause about how Europe should about its excessive energy dependence on Russia and searching for a way to end it as soon as possible. Many see Nabucco as the main alternative for Europe to the pipelines that cross Russian territory and the Moscow-backed Nord Stream and South Stream. Nabucco proposes the construction of a natural gas pipeline to connect Transcaucasia, Central Asia and the Middle East by way of Turkey, Bulgaria, Romania and Hungary with the countries of Central and Western Europe. The pipeline would stretch 3300 km. from Turkey to the Austrian city of Baumgarten. It would have a capacity of 31 billion cu. m. and a launch date of 2012, at a cost of about €8 billion. The participants in the Piestany hotly supported Hungary’s initiative to speed up the project’s implementation and hold a conference in Budapest next month of representatives of the companies taking part in Nabucco (Austrian OMV, Hungarian MOL, Romanian Transgaz, Bulgarian Bulgargaz, Turkish Botas and German RWE). Hungarian Deputy Foreign Minister Marta Fekszi Horvath explained that the conference will be preparatory to a larger event. A summit of Nabucco participant states is planned in Budapest in January of next year, to which representatives of the gas supplying states in Transcaucasia and Central Asia, the U.S. administration and European leaders will be invited. “The goal of the summit is not the latest declaration of intentions, but the substantive decision making,” a Hungarian saig. Greetings from Baku - Things started looking up for Nabucco in the region last week. On September 9 and 10, an international business forum took place in Baku called “The Oil and Gas Potential of Turkmenistan and Azerbaijan: Energy, Economy, Ecology. Cooperation Strategy.” The participants did not hide the fact that they were most interested in Nabucco. As Mikhail Korchemkin of East European Gas Analysis told Kommersant, everyone consciously did not mention Russia and the preliminary agreements between Azerbaijan and Russia on the purchase of all free volumes of export gas by Gazprom at European prices. At the forum, First Deputy Prime Minister of Azerbaijan Yagub Eyubov stated that the country will produce 28 billion cu. m. of gas in 2008, will is clearly insufficient to fill Nabucco. He gave assurances, however, that Baku is prepared “to provide the appropriate infrastructure for the transportation of Turkmen energy resources to Europe.” The Transcaspian pipeline was being referred to, which will deliver Turkmen gas to Europe bypassing Russia. In a message to forum participants, Turkmen President Gurbanguly Berdymuhamedov noted that an audit of reserves in the Turkmen sector of the Caspian Sea is now being conducted and that gas can go to the EU. After that, Turkish Energy Minister Hilmi Guler said that Ankara has no doubts about the promise held by Nabucco. It was clearly by the end of the forum that Azerbaijan can begin exporting gas to the EU even before the completion of Nabucco. Greek Minister of Development Christos Folias stated yesterday after a meeting with Azerbaijani Minister of Industry and Energy Natik Aliyev that Athens and Baku have reached an agreement in principle on the annual delivery of 1 billion cu. m. of gas beginning in April of next year. “I want to emphasize that Azerbaijan will be selling gas directly to the EU for the first time,” Folias said. “That decision marks the beginning of closer cooperation between Azerbaijan and Europe.” The gas will be delivered through the Turkish gas transport system and then through a 295-km. pipeline in Greece that has already been built. The further route of that gas to Western Europe was also discussed in Baku. From Turkey, the gas is to travel on an existing line to Nea Mesimvria, Greece, which has a side branch to Athens. From there, a 305-km. pipeline will be built to the port of Stavrolimenas in western Greece, and the final 212-km. link will be built along the bottom of the Adriatic Sea to the port of Otranto in southeastern Italy. The estimated cost of the Greek-Italian section of the pipeline is €300 million. The Turkey-Greece-Italy line is expected to be launched in 2012. Judging from the Baku forum, there should be no problems with the resource base for Nabucco. Moreover, Tehran mentioned its interest in the project again last Friday. Iranian Oil Minister Gholam Hossein Nozari said in an interview with Wiener Zeitung newspaper that OMV should expedite the implementation of the project and sign a contract on gas supplies. “Clearly, Nabucco cannot be implemented without Iran. The country with 16 percent of the world’s gas reserves cannot be ignored,” he said. “But we cannot wait forever, so Austria needs to hurry. The EU needs Iran.” Obviously, none of this makes Russia happy as it strives to control the transport of gas from Central Asia. That is all the more so since Moscow seemed so close to realizing that hope until just recently. In July, Gazprom head Alexey Miller signed an agreement in Ashgabat on the purchase of Turkmen gas for $225-295 per 1000 cu. m. Then a similar agreement was reached with Uzbekistan during the visit there of Russian Prime Minister Vladimir Putin this month. Putin convinced Tashkent to agree to the construction of a new gas trunk line from Uzbekistan to Russia that would increase the capacity of the Central Asia – Center pipeline system from 45 billion to 80-90 billion cu. m. per year. The Baku forum shows that Russia was not able to close down the Nabucco project, however. The participation of Hungary and Greece, key partners with Russia in South Stream, in the competing project has to be an especially bitter surprise. Greetings from Washington - The jump start of Nabucco is far from the only unpleasantness in energy projects awaiting Moscow after the war. Pressure has been turned up on another Gazprom baby as well, the Nord Stream pipeline that leads to Germany across the Baltic Sea floor. Nord Stream AG, the project operating company, needs the permission of the countries the pipeline will pass through. But Sweden, Denmark and Finland have found various ways of slowing the project down by expressing ecological concerns. Since the August war, criticism of Nord Stream has increased. Washington is pushing the Scandinavians to oppose the project. On September 10, U.S. Ambassador to Finland Michael Wood published an article in Svenska Dagbladet newspaper urging the Swedes not to agree to the laying of the pipeline and reminding them that the project “is the result of a special agreement between Russia and Germany.” On Friday, German Foreign Minister Frank-Walter Steinmeier sent an official protest to the U.S. embassy in connection with the article. Nonetheless, Berlin is not able of expediting the project. Washington is stepping up activity in other areas to decrease Western energy dependence on Russia. On September 5, U.S. Secretary of State Condoleezza Rice visited Libya and held negotiations with Muamar Kaddafi. She was the highest-ranked U.S. guest in that country in the last 55 years. After the meeting, she stated that America does not have “eternal enemies” and Washington plans to sign an agreement on trade and invest with Libya in the near future. The United States was especially interested in Tripoli’s joint plans with Gazprom to build a pipeline from Libyan gas fields to Italy, as Putin discussed with the Libyan leader during his April visit. The U.S. State Department reported that Rice and Kaddafi discussed energy partnership. It is possible that Rice praised the Libyan leader’s intention to build a pipeline to Europe, but suggested finding a Western partner to do it with. At the end of last week, The Financial Times reported that British Prime Minister Gordon Brown intends to invite Kaddafi and Venezuelan President Hugo Chavez to an oil summit in London in December. The West, with its disagreement with Russia over Georgia and desire to find alternative sources of energy, seems ready to talk to those leaders. The British organizers have not yet said anything about Russian participants in the summit.

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