Posted on July 22, 2009 - by Venik

A tale of two pipelines | Ian Bancroft

The Nabucco and South Stream projects will secure gas for the EU – and change the power balance in the Balkans

The EU’s long-delayed Nabucco pipeline has received an important boost with the signing of an inter-governmental transit agreement between Turkey, Bulgaria, Romania, Hungary and Austria. With Russia’s rival South Stream project having already secured the support of Italy, Serbia, Bulgaria and Greece, the Balkans is gradually becoming a tale of two pipelines. The outcome of these respective projects, therefore, will have far-reaching implications not only for Europe’s long-term energy security, but for the strategic balance of the Balkans and the pressures facing the EU’s enlargement agenda.

The Nabucco pipeline, which is expected to cost around €9bn to construct and be operational by 2014-15, is intended to dilute the EU’s reliance on Russian natural gas by transporting supplies from the Middle East and Central Asia, via Turkey and the Balkans, into Europe. The project has to date been afflicted by disagreements between Turkey and the EU over transit terms, and between Turkey and Azerbaijan, widely regarded as one of Nabucco’s key potential suppliers.

Though Turkey’s demands for 15% of the transited gas at discounted prices have not been included in the agreement, they are likely to become a major sticking point in the future, particularly if the EU continues to stifle Turkey’s EU membership prospects. Turkey’s prime minister, Recep Tayyip Erdogan, has been quick to emphasise how the Nabucco pipeline “will elevate Turkey to a significant position” for European energy security, while José Manuel Barroso spoke of “a new age in relations between Turkey and the European Union”. Despite growing calls for the EU to open the energy chapter of the acquis communautaire, it remains extremely doubtful that Turkey’s growing strategic importance will be sufficient to sway countries such as France and Cyprus to accept the prospect of it joining the EU anytime soon.

Important questions also remain over how the Nabucco pipeline will be funded and from where sufficient quantities of natural gas will be secured in order to ensure its long-term viability. At the end of June, Azerbaijan signed a deal with Gazprom to sell natural gas to Russia from 2010 onwards. Turkmenistan, meanwhile, recently finalized a 30-year agreement with China for the purchase of natural gas; a move which challenges the respective pursuits of Central Asian supplies by both Russia and Europe. Iraq and Iran, the latter possessing the largest gas reserves in the world after Russia and Turkmenistan, will therefore remain strategically important to Nabucco, despite deep-seated instability in the former and political tensions with the latter.

Russia, in comparison, facing fewer obstacles with respect to securing both funding and gas supplies, signed an agreement with the national gas companies of Italy, Serbia, Bulgaria and Greece in May 2009 for the construction of South Stream, including a deal between Gazprom and Italy’s Eni to double its original planned capacity.

The inclusion of Serbia into the pipeline’s proposed route, combined with the construction of a gas storage facility at Banatski Dvor in Vojvodina, will make the country a key regional energy hub. A June 2009 deal, meanwhile, between Serbia’s state gas monopoly, Srbijagas, and Republika Srpska’s gas company, Gaspromet, for the former to acquire a 40% stake in the latter, will serve to further integrate Republika Srpska into South Stream. By controlling the sole gas access point to Bosnia and Herzegovina, whose lack of gas reserves were exposed during last winter’s dispute between Russia and the Ukraine, Serbia will therefore yield considerable influence over its natural gas supplies.

Though Nabucco is widely anticipated in European circles, the obstacles it faces in terms of securing sufficient and reliable supplies of natural gas mean that it will struggle to fulfil the objectives for which it was originally intended. Indeed, by elevating Turkey to a position of strategic importance to Europe’s energy security, Nabucco will invariably become a bargaining tool given the former’s aspirations for EU membership, thereby further complicating the EU’s enlargement agenda. With South Stream – which will make Serbia a key regional energy hub – facing fewer obstacles to its successful realisation, energy will therefore have ever more important ramifications for the relative balance of power and influence in the Balkans.

Original article

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