“Nabucco”, an Italian opera by Verdi, and Turkey’s role as an energy corridor

“Nabucco”, an Italian opera by Verdi, and Turkey’s role as an energy corridor

19:49 27 January in ARTICLES, In English

Todays ZamanToday’s Zaman | 27 January 2008

Mehmet Öğütçü 

Nabucco (short for Nabucodonosor) is an opera in four acts by Giuseppe Verdi, based on the biblical story. Nabucco follows the plight of the Jews as they are assaulted and subsequently exiled from their homeland by theBabylonian King Nabucco in the 6th century B.C.  Its first performance took place on 9 March 1842 at the Teatro alla Scala, Milan under the original name.

After Nabucco which reinforced his reputation, Verdi composed other magnificent pieces that touched our souls including I Lombardi alla prima cruciata, Ernani, Attila, Macbeth, La Traviata, Don Carlos, Aida, Otello. But most probably he would not think that his masterpiece Nabucco would inspire the European Union’s most important energy security project 166 years later.

Today’s Nabucco, assumed in 2004 by a consortium led by the Austrian firm OMV, seeks to transport natural gas from Azerbaijan, Turkmenistan, Kazakhstan, Iraq, Iran, Egypt, and Syria via Turkey to Europe which will, according to the projections, suffer from large sums of gas supply deficit (up to 100 billion cubic meters) in the next 25 years. This is an energy security project that seeks to open a “fourth artery” in addition to the existing Russian, Norwegian and North African supply lines, plus LNG shipments.

The Nabucco line is expected to be connected to the Tabriz-Erzurum, South Caucasus and Trans-Caspian gas pipelines. The total length of the connected lines stretching from Erzurum to Baumgarten an der March inAustria will be 3,300 kilometers. Its transportation capacity will start from 10 billion cubic meters (bcm) and increase to 31 bcm in 2020. The total cost of the pipeline whose construction is scheduled to start in 2009 and will be completed in 2012 is estimated as $7.3 billion.

I often refer to Nabucco as a “pipedream” project in my private conversations, which could become a “reality” when so many “ifs” could be materialised. There are several reasons for this word choice:

  • Above all, there is no synchronization between the supply-transit-demand legs of the Nabucco project which is mainly a transportation design. The centers of demand, the route, and the size of the demand are all clear. And so are the need for source diversification and the geopolitical reasons. But, as of today, there is no exclusive natural gas source/reserve that will be allocated to Nabucco. The amount of natural gas that the gas producers in the Caspian Sea and beyond in Central Asia would send through this line is small. Turkmenistan currently seeks to fulfill its obligations under long term agreements with Russia and China. It even considers a deal with India and Pakistan via Afghanistan once the stability and security will be achieved in this country. Kazakhstan’s supplies are contractually tied up with Russia up until 2020 unless new resources will be mobilized before then. It already agreed to transport the remaining production via a gas pipeline that will be constructed between China and Kazakhstan soon. Uzbekistan may be another important gas producer; but its domestic consumption is very high and it is already committed to make all gas exports to Russia under a long term agreement.
  • Under these conditions, there remains only Azerbaijan to provide the initial volume of 10 bcm to kick off the Nabucco project. However, it should be remembered that Baku had to cut off the natural gas connection with Russia due to Gazprom drive in the CIS region for “market prices” and the obvious geopolitical reasons. So did Georgia. Therefore, the natural gas extracted by the BP-led consortium in Azerbaijan will have to be considered for domestic consumption first. Then, some of the remaining amount will be diverted to the needs of the neighboring and transit country Georgia. Some amount will also have to be transmitted toGreece and Italy via Turkey through the recently-opened Interconnector; only the rest –if there remains any—will be allotted to Nabucco.

This vague picture in regards to supply I try to paint will become clearer only if the following developments take place:

  • If BP’s recent gas discoveries in Azerbaijan could be swiftly turned into production; in other words, if Azerbaijan would be able to double its gas production in the next four or five years,
  • If the dispute between Azerbaijan and Turkmenistan over Kepez/Serdar is resolved to mutual satisfaction and the jointly developed resources in this area would be exclusively dedicated to Nabucco,
  • If the authorities in Arbil, Ankara and Baghdad could develop a modus vivendi as regards the resource development and transportation in Northern Iraq, the rich gas reserves in Taktak and Chemchemal could find its way to Nabucco sooner than many can expect,
  • If the current sanctions on Iran could be lifted as a result of serious political changes both in Tehran and in most western capitals and if foreign capital inflows start again for increasing natural gas production in this world-class gas-rich country,
  • If Egypt and Syria which are currently having difficulty to meet their domestic demands and have LNG export commitments are genuinely involved in this project through the Arab peace pipeline.

One major flaw of the Nabucco project is that the consortium that leads the project is not as strong as the consortium that drove the BTC project. Is it possible that OMV, the Hungarian MOL, BOTAª, Romanian Transgas and Bulgargas, each with a 20 percent share, will be able to carry out such a large and complicated project?  Do they have the necessary political, technical, and financial skills and capacities? Of course, German RWE which is likely to join soon the consortium, and the Azeri SOCAR, also expected to take part very soon, will enhance the chances of the consortium to deliver and improve the project’s credibility in the eyes of the financiers and countries along the route of the Nabucco line.

Undoubtedly, Russia will look for any available pretext to step this project from moving ahead and undermining its monopolistic position in the lucrative European gas market. It will likely sabotage any attempts it considers threatening to its interests. Just like it proposed the Blue Stream project to render the Trans-Caspian natural gas pipeline project ineffective in early 1990s, Russia has now put forth a “South Stream” project to contain similar attempts. It has convinced Bulgaria in a recent summit meeting in Sofia last month to ensure a rapid implementation of the alternate project. Although Hungary is a party to the Nabucco project, top leaders in the country’s government and the national energy company MOL publicly deprecate the project’s viability and compare Nabucco unfavorably with Gazprom’s South Stream. Such tactics discourage investments in the Nabucco pipeline and commitments to it by upstream suppliers — particularly since MOL began referring to itself as a “partner in South Stream” as well. This would clear the way for Gazprom’s project instead of the EU’s.

Russia has also revived the long dormant Near Caspian pipeline project with Turkmenistan and Kazakhstan. Moscow has also agreed after a series of pain-staking negotiations to increase the price of the natural gas that will be transported via this line to $130 per thousand cubic meters from $65 two years ago; it will go even higher to $160 in the second half of the year.

The likelihood of persuading Russia and Iran to construct an undersea Caspian pipeline is very slim and the Caspian Sea legal status will long remain disputed. It does not appear very realistic to believe that Turkmenistan,Azerbaijan, and Kazakhstan will not consider seriously objections by Tehran and Moscow despite Washington’s backing to move without the agreement among the five littoral states.

Even if all these obstacles will be overcome this way or another, Turkey’s pursuit of additional gains under the “transit plus” formula continues to bother the other parties. There are considerable question marks as to the reliability of Turkey as a transit country and whether Turkey may become another Ukraine.

This list of hindrances could no doubt be extended. In a bid to silence the critics of the Nabucco project, particularly in relation to the lack of synchronization, the European Commission has recently appointed former Dutch foreign minister Jozias Johannes van Aartsen as the Nabucco coordinator. His task of coordinating 27 EU countries, hundreds of EU bureaucrats, a dozen of countries party to the project, and investor companies is a thankless and impossible one, as discussed with him in London.

The primary perspective of the investors is as follows: we know that the EU and the US do not construct pipelines and keep repeating the mantra that “this project has to be commercially viable”. But they can certainly help achieve a political framework within which the multilateral financial institutions and commercial banks could make available large sums of investment monies. For instance, if the European Investment Bank could consider opening a credit line, as much as it provided for the modernisation of the Budapest metro, to Nabucco project, most of the questions could dissipate If the Nabucco pipeline gets constructed as the EU’s energy security project without awaiting full gas sale contracts, the gas producers will be incentivised to invest more in their idle gas reserves and attract international investors as the European consumers will offer a better price than the Russian or the Chinese for the gas to be produced.

In a nutshell, the realization of the much-debated Nabucco project does not depend on Turkey’s choices alone; however, without Turkey’s active involvement and creative energy diplomacy, it is unlikely that it will go ahead as planned. For this reason, just like the EU did, even if for paying lip service, we should consider putting together a dynamic, international-calibre team on the Nabucco project to ensure coordination between the relevant governments, private sector actors, and other international players. We should also do all necessary not to risk our longer term strategic goals for the sake of short-term interests.

Otherwise, both the Babylon King Nabucco and Verdi will turn up and down in their graves.