The Nabucco Pipe Dream

Patrick Frost at the FPA’s Afghanistan and Central Asia blog flags a meeting of high-level participants in the EU’s Nabucco pipeline project. Frost’s rundown on the state of play is about the most thorough and concise analysis I’ve read of the issue, and well worth clicking through to read.

Most Nabucco observers remain skeptical for two principal reasons. On the demand side, the commitment level of the European consortium torealizing the project has never met the threshhold to make it worth thepolitical risks (i.e. Russian retaliation) for the supplier and transitcountries involved.

On the supply side, it’s unclear whether Turkmenistan and Azerbaijan have enough available reserves (i.e. not already contracted to Russia) to make the pipeline feasible.

Toss in some pricing disputes, plans for the competing Russian Nord and South Stream pipelines, and Gazprom’s skillful use of carrots (offering market price for gas purchases in Central Asia) and sticks (how do you say, Ouch, in Ukrainian?), and — notwithstanding Europe’s urgent need to diversify its energy sources — Nabucco seems doomed.

The summit was supposed to address the political commitment of the demand side, but so far all it seems to have produced is the variety of commitment that walks, as opposed to the kind that talks. Of the latter, there are conflicting signals from the EU regarding its willingness to participate in what is a commercial venture, whether through loan guarantees, financing or non-refundable funding. Reuters reported a possible outlay of €250 million, which ought to cover expenses for the next high-level meeting of the €8 billion project.

As for the supply side, Vladimir Socor (via Frost) points to recent audits of Turkmeni reserves that suggest there’s more gas available than previously believed. But as Peter Doran argued in a recent WPR Briefing, the pink elephant in the room is still Iran, whose gas reserves would make much more strategic sense heading to Europe than to Pakistan, India and perhaps China, as currently proposed.

That gets back to a point I’ve argued previously, namely that one of the major — if relatively unexamined — flaws inthe Bush administration’s grand strategy was to have tried to containboth Russia and Iran at the same time. I’ll have more on that later.

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