The Revival of Nabucco West: Myth or Reality
The revival of the Nabucco West is doomed to failure unless the Trans-Caspian Pipeline is realized. There is no sufficient amount of available gas for the pipeline, which primarily intended to transport Caspian gas. However, the project which was supposed to be dead long ago may become effective in a short period of time, if it is filled by the Russian gas, built by other (than Russian) sponsor and accepted by the official Brussels. Hence, the Russian gas can hardly be considered as an alternative to the Caspian gas to be delivered via NW, because the EU intends to decrease the gas dependence from Russia.
On 4th of March 2015 Bulgarian Prime Minister Boyko Borisov at the meeting with the President of Azerbaijan Ilham Aliyev mentioned the possibility of the revival of the Nabucco (named after Giuseppe Verdi’s opera) West pipeline. However, the idea of the restoration has started well before. After the cancellation of the South Stream pipeline there was a necessity to ensure the security of supply for the future gas demands of Bulgaria. “The very idea of the reincarnation was mentioned following a meeting with the British Prime Minister David Cameronon 19th of December, 2015.” It is worth reminding that the project was suspended in 2013, when the stakeholders of Shah Deniz consortium preferred TAP to the Nabucco West (hereafter NW).
I. Milestones and the Challenges
After the initiation of the Nabucco project by Austria in 2002, Russia decided in return to launch the project (South Stream), which was intended to deliver massive volumes of gas to the same market. As an alternative, NW project, which is much shorter than Nabucco, was proposed. The route of this project is not much different from the South Stream’s (Romania on its way instead of Serbia), but there is huge distinction in terms of capacity (31 bcm/year versus 63 bcm/year of the Russian pipe).
Following the termination of the South Stream, there was supposed to be no obstacle remaining before the NW. However, it has been argued that‘the train hasgone’ already.
Lack of available gas
Azerbaijan, currently the sole gas supplier from Caspian Sea to Europe, has allocated most of its exportable gas resources to the Trans-Adriatic Pipeline (hereafter, TAP) project (to be operational by 2018-2020). According to the Energy Union the potential sources for the future gas demands of the EU are named to be Azerbaijan, Turkmenistan, Iran and Iraq. Whereas Iran is still under tough sanctions and its gas infrastructure remains embryonic, Iraq is fighting against ISIS. Even if the majority of sanctions on Iran are lifted it is too premature to make any prediction on the possibility of Iran’s gas exports to the EU. Today, Turkmenistan has got no capability to deliver gas to the EU. Hence, since the first (10 bcm/year by 2020) and second stages (20 bcm/year) of transportation of Azerbaijani gas to the EU have already been fully guaranteed from Baku, there may be no necessity for Turkmeni gas unless the capacity of the pipeline is enhanced up to the level of 31 bcm/year (approximately by 2025). It is too early to make any anticipation for the next decade, but it is clear that both the EU and Turkey are working hard to make a breakthrough in the agreement over the realization of Trans-Caspian Pipeline (hereafter TCP), which in turn will make gas deliveries from Turkmenistan to the EU in future possible. On 2nd of March 2015, “the Ministry of Petroleum and Mineral Resources of Turkmenistan made a statement: “A huge resource base of hydrocarbons onshore and offshore allows Turkmenistan to increase the exports of natural gas to the world markets, to develop the new routes of its exports in the eastern and the European directions," the statement said.” Thus, practically speaking there is no sufficient amount of available gas for the pipeline, which primarily intended to transport Caspian gas. Therefore, NW may come true if it alters the source of supply or expects until the TCP is realized.
Reluctance to import Russian gas
Russia did not just put to an end the South Stream project, but presented another project the so-called ‘Turkish Stream’, the primary intention of which allegedly is to reach the same market as its predecessor was willing to (except for Turkey). NW can be a link between the ‘Turkish Stream’ and the EU, since its final destination is expected to be Baumgarten. The Austrian gas hub is the point from where Russia is able to sell its gas further to the West. Having said that it is worth mentioning the fact that Energy Union explicitly stated the intention of the EU to decrease the gas dependence from Russia. So, Russian gas can hardly be considered as an alternative to the Caspian gas to be delivered via NW. Moreover, there is no EU state other than Bulgaria, which has been strongly supporting the implementation of NW.
What does the revival of NW mean?
One should not view the declaration of the reincarnation of the NW in isolation, nor its renaissance should be regarded as a turning point of the future energy face of the EU. However, the whole picture of gas supply in the EU is being shaped. Russia is changing the strategy as regards to the gas sales to EU. It does not anymore deal with the end customer. EU in turn does not seek more gas from Russia. “As part of a revitalized European energy and climate diplomacy, the EU will use all its foreign policy instruments to establish strategic energy partnerships with producing and transit countries such as Algeria and Turkey; Azerbaijan and Turkmenistan; the Middle East; Africa and other potential suppliers’.”It continues its intensified discussions with Turkmenistan. Turkey on the other hand takes the leading role in negotiations with Turkmenistan and Azerbaijan on the implementation of the TCP. Despite the fact that the conflict between the Caspian states over Kapaz (Serdar) and other fields is not over yet, the rhetoric is much warmer than it is used to be. So far, Turkey has been successful as a unifying actor, but the existing problems between Turkmenistan and Azerbaijan and uncertainty over the Caspian status are still there. Thereby, within the changing rules of the game in natural gas market, there can be different scenarios for the NW and its fate is yet to be determined.
II. Possible Future Scenarios
At first hand, the revival of the NW pipeline seems to be a political declaration only, nothing else. However, it is worth looking at it from different angles.
Substitution for the South Stream?
It may sound paradoxical, but the rebirth of the NW may be the result of the cancellation of the South Stream and its alteration with the ‘Turkish Stream’. The reason is simple, despite the EU’s economic sanctions against Russia, the latter will continue its domination in terms of the exports of natural gas over the former. Moreover, Russia’s reluctance to be engaged into the conflict with the Third Energy Package (hereafter TEP), may result in implementation of non-Russian pipe delivering Russian gas, such as NW. “Following Kremlin’s decision to terminate South Stream, the statements of high profile decision-makers in Bulgaria, Serbia, Hungary and especially Austria about the significance of Russian gas are the initial clues for prospective renegotiations. In today’s conditions, Russian gas is indispensable for these countries. The European partners of the South Stream project are dependent on Russian gas at the following levels: Bulgaria 100%, Serbia 100%, Hungary 43.7%, Slovenia 45.2%, Austria 71% and Italy 28.1%.” Russia may benefit from the NW project with the condition that the realization of the project will occur without its involvement. Head of Gazprom Alexei Miller repeatedly stated the necessity for EU to link up to the ‘Turkish Stream’. Thus, hinting that the EU will have to build routes to the border with Turkey itself. This is actually explains the rationale behind the talks over the revitalization NW, “since it is the only project which has been worked over and over and able to bring such a big volumes.” So, if one takes the realities of the political conjuncture, then NW seems to be the only suitable option for both sides (EU and Russia), with the condition that ‘Turkish Stream’ is there. “From the perspective of the EU, NW can solve the possible gas supply problem faced by the European partners of the former South Stream project. The realization of NW may be an indirect political victory against Russia by the EU.” NW has got almost same route as the South Stream so there will hardly be any challenges in terms of defining the potential customers for Russian gas. The project which was supposed to be dead long ago may become effective in a short period of time, if it is filled by the Russian gas, built by other (than Russian) sponsor and accepted by the official Brussels. However, it will be extremely tough to get EU’s approval, taking into consideration the status-quo.
Fusion with TAP
Some experts find the assumptions behind the merge of TAP and NW projects into one viable. The logic behind it is the following: since Azerbaijan wants to diversify end clients in the EU, its natural gas resources could be added to massive volumes of Gazprom (which will presumably deliver its gas to the region via the ‘Turkish Stream’) and pumped into NW. At the meeting with the Prime Minister of Bulgaria, the President Ilham Aliyev said that what really matters is to bring more Azerbaijani gas to Europe, and that the name of the future pipeline is not important. "We think that we can unite TAP and Nabucco. It is not important what you call this route.”Aliyev said. "The more EU countries receive our gas, the better for all." Nevertheless, it is doubtful that the president implied the participation of Russian gas in the unification. It was rather an expression of openness and availability of Azerbaijani gas to be delivered to any EU member state by any means of transportation, be it future interconnectors or NW.
Theoretically speaking the conflux of TAP and NW is quite feasible; hence Azerbaijan will hardly be willing to participate in the project as a partner of Russia, because of limited reserves for export and reluctance to have a strong rival in the same region. Moreover, there is no need for Azerbaijan to build a new pipeline to reach other customers within the EU. It may sell its gas at the hub in Italy and/or via the future interconnectors of Greece or Turkey. On the other hand, as it was mentioned earlier, Russia is not interested in building pipeline within the EU. Therefore there is a need for impetus from the EU to build such a pipeline. At the moment such a scenario seems to be remote from the reality. Azerbaijan continues considering this project financially non-profitable. In fact only the agreement over the Trans-Caspian pipeline may positively contribute to the debates over the expediency of the NW.
NW with a different name?
Bulgaria also pays special attention on the Slovakian project called Eastring. The pipeline, which is going to be built from the Slovakia-Ukrainian border to Bulgaria-Turkish border will be ready by 2018 with the capacity of 40 bcm. per annum. As one may notice, TAP project will be able to deliver that amount of gas neither at first nor at the second stages of its development. Therefore, it is not hard to calculate what source of gas this pipeline is intended for. Thus, Bulgaria does not renounce from the Russian gas and ready to become one of the clients or at least the transporter for the ‘Turkish Stream’ gas. This project aims at building the necessary infrastructure for brining the gas from South-East Europe to the Northern and Western parts of Europe both gas from the Caspian basin, Russia and Middle East. The pipeline has got several advantages over NW. First of all it does envisage the participation of Ukraine in the project (although at the limited extend), thereby Eastring overcomes the fears of the EU over the plans of Russia to bypass Ukraine while delivering gas to Europe. Secondly, there is not much investment needed, since some gas transportation routes on its way already exist. Therefore, by building few interconnectors the chain called Eastring will become fully operational. Last but not the least, “Eastring is fully compliant with all EU rules and their spirit, a project with unrestricted access for third parties.” Bearing all these facts in mind, one may strongly doubt the necessity for the NW.
III. What is the aim of Bulgaria?
Possible gas shortages
Apparently, Bulgaria attempts to restore the mentioned project firstly to guarantee its energy security. Today 100% of Bulgarian gas comes from Russia. In case if NW is actualizedit will be able to cover the possible shortages of gas that Bulgaria may have once Russia ceases to deem Ukraine as a gas transit country. Ilham Shaban, the head of the “Caspian Barrel” Oil Research Center, disregards this argument.“Once the supply of Russian gas via Ukraine is over, Bulgaria will be able to use the pipe through which Turkey gets the gas via Romania and Bulgaria and be able to utilize it in reverse.”This statement has some truth in it, because Turkey has already got many routes of supply. Bulgaria can get the gas from the would-beinterconnector with Turkey as well,based upon the resources from the future‘Turkish pipeline’ or Iran. It can also receive natural gas from the interconnector with Greece (expected to be operational by 2018) based on the TAP gas or LNG in Greece. It is worth mentioning that Azerbaijan has already vowed to deliver 1bcm/year to Bulgaria through Greece once TAP becomes operational (by 2020). At the moment total gas consumption of Bulgaria is about 3bcm per annum. Thus, taking into account the fact that Bulgaria may cover relatively modest amount of gas demands through additional imports of gas from TAP or upcoming interconnectors, one can hardly buy the argument of inevitability of the NW as the only way to overcome the future shortages.
Russia was planning to rehabilitate two reactors of Bulgaria’s nuclear plant, but after the ‘inadequate’ position of Bulgaria on the South Stream (Bulgaria was postponing the decision over the sanctioning the project), there is an uncertainty to certain degree. This in return would lead to what Prime Minister Borisov called a ‘catastrophe’. “In his words, Russia was expected to rehabilitatethe units 5 and 6 of the Russian-built Kozlodui power plant. Units 1 to 4 have been decommissioned as part of Bulgaria’s EU accession deal, but units 5 and 6, of a more modern design, could continue to function for many years, provided that they are rehabilitated by the company that built them.”“Bulgaria depends on Russia for all of the nuclear fuel needed for its Kozloduy nuclear power station, which has two functioning reactors.“I’m confident in the security of Units 5 and 6, but the issue is that their rehabilitation could cost too much, and last too long. Stopping one of the reactors is a catastrophe for Bulgaria, its economy and its citizens won’t be able to pay the bills, as the remaining electricity that it produced is way too expensive,” Borisov said.” In other words, Borisov does not want its country to suffer because of being in the battlefield between two conflicting partners. It is worth mentioning that the current Prime Minister has been once forced to resign because of high prices for electricity, thus inability to solve its energy problems may have a disastrous effect for him and his cabinet.“On February 20, 2013, Borisov had to resign from government as a result of mass protests in the public protests in the capital and several other cities over the price of electricity.”It comes as a no surprise that the gas shortage would lead the price for natural gas to skyrocket. Although the 2013 unrests had much to do with the prices on electricity, one may see no reason why high prices for natural gas may not have the same effect. Thus, the hiked prices may lead to the boisterous protest, which in the end may again cause the resignation of the government. Taking all these assumptions into account one may understand the anxiety of the Prime Minister before the imminent resignation. Borisov simply wants to avoid ‘stepping on the same rake’.
Willingness to become a gas hub
Bulgaria, along with its primary goal (to meet its demand for natural gas), definitely wants to use this very opportunity and expand its role in international arena. Taking into account the massive volumes of gas to be concentrated soon on the Turkish-Bulgarian and Greek-Bulgarian borders, the government’s attempt to turn Bulgaria into a gas hub sounds rational.The source for the hub could be gas from Azerbaijan, Russia (if the ‘Turkish Stream’ is realized),LNG in Greece, or any other source.At the meeting with the Vice-President responsible for Energy Union, Maros Šefčovič on 12th of January, 2015 Borisov said:“… the gas hub could become one of the infrastructure projects under Commission President Jean-Claude Juncker investment plan.”For his part, Šefčovič gave no assurances regarding the Bulgarian idea of a gas hub. A joint communiqué says the sides had agreed that a “high level group” tasked with advancing important energy projects in South Eastern Europe would first meet in Sofia and “analyze the energy situation in the region and, amongst others, whether and how these conditions can be met by the creation of a gas hub in Bulgaria”.”On 9th of February 2015 representatives of Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovenia and Slovakia as well as European Commission Vice-President for Energy Union Maroš Šefčovič and Commissioner for Climate Action & Energy Miguel Arias Cañete have held the first meeting of the Central East South Europe Gas Connectivity (CESEC) High Level Group in Sofia, but there was no hint on the establishment of gas hub in Bulgaria mentioned in the in the joint press statement. However, participants agreed to that each of them should get access at least to three different gas sources.
In terms of the natural gas infrastructure Bulgaria is among the least developed countries in EU. Furthermore, unlike any other gas hub, it does not have enough storage facilities. “Bulgarian natural gas is stored in Chiren underground storage facility owned by Bulgartransgaz with its 550 million m3 capacity.” Moreover, Bulgaria still negotiates the interconnectors with Serbia, Romania, Greece and Turkey. Absence of final decision on interconnectors makes the future gas situation around Bulgaria even more blurry. “It’s not a physical problem, it’s a failure of political will, and a failure to implement the Third Energy package in its entirety in the countries involved,” Brendan Devlin, advisor in the Commission’s DG energy said.” Taking all these facts into account Bulgaria’s dream to become a gas hub in the short-run most probably will remain to be so.
To conclude, it is too early to predict the demise of the revival of the NW pipeline. At first glance, the project which was oriented towards the Caspian pipeline is primordially doomed to failure. Firstly, there is a lack of available volume to fill the pipe. Secondly, the pipeline which would carry natural gas from Turkmenistan is not there and unlikely be there in near future. Hence, one should also assume the possibility of alteration of the initial goal of NW. There are certain ways to bring the project into the reality. One option is to guarantee the supply of Russian gas (to be delivered by the ‘Turkish Stream’). The only problem with the argument is the absence of approval by the EU. The support of EU in realization of the project may not be sufficient, but it is vital and mandatory. Even though Russia remains the major supplier of gas, EU has no intention to further enhance the imports from Russia. Therefore, NW guaranteed to be filled by Russian gas will not be realized unless their relations will change. Another option is to merge two projects, i.e. TAP and NW into one. However, Azerbaijan does not have enough resources to distribute to TAP, but even if it gets more natural gas in future from the prospective fields Azerbaijan would hardly be willing to allocate its resource to the project where the dominant role is give to Russian gas. Thirdly, there is a pipeline on the table called Eastring, which presumably going to play the same role as of NW.. Although, the project is still at initial phase and the routing is yet to be defined, it seems to be very promising.
Thus, one may come up with the question on the necessity and rationality behind the statement over the revival of NW. It was officially presented by the Prime Minister of Bulgaria with the aim to overcome several challenges the country may face in near future. Since, Bulgaria imports natural gas via Ukraine, gas supplies to the country is under the threat. It wants to diversify the routes and even the sources by reincarnating the NW pipe. Bulgaria just desperately needs alternatives to the South Stream, in that context NW would become a lifebuoy.
All in all the logic behind the project is rather political, with some (although poor) possibilities of its realization. Those possibilities stick to cornerstone points: realization of Trans-Caspian Pipeline, realization of the Turkish Stream, EU’s approval to build NW, EU’s approval to fill the pipe with the Russian gas etc...
Elmar Baghirov is a graduate of the International Affairs Master program at Azerbaijan Diplomatic Academy who is focused on the energy security issues