Letter from Europe: Guessing game focuses on European energy

Energy Trade

A new Great Game is unfolding in Central Asia, where the British and Russian empires contended for supremacy over this vast and rich region.

In the early 19th century, it was about protecting and extending the land and sea routes of their dominions. Now, it is about energy, particularly Iranian natural gas. And this time, it is the Europeans and the Americans who are trying to outmaneuver each other in the hope of standing first in line if reformist politicians emerge in Iran. The European plan seems simple. Europe needs Iranian natural gas for the Nabucco pipeline, the European Union’s most ambitious infrastructure project. The idea envisions Europe receiving gas through a pipeline stretching 3,000 kilometers, or 1,800 miles, from Turkey through the Balkans and Central Europe into Austria. Turkmenistan, Azerbaijan and Iran, which hold the world’s largest reserves, would feed gas into the pipeline.

The European Commission, the executive arm of the European Union, is pulling out all the stops. Last week it appointed Jozias van Aartsen, a former Dutch foreign minister, to oversee a project that has been plagued by delays, poor organization and conflicting interests among the five shareholders. They are OMV of Austria, MOL of Hungary, Botas of Turkey, Bulgargaz of Bulgaria and Transgaz of Romania. “This is a unique project that has big implications for Europe’s energy security and its foreign policy,” van Aartsen said in Budapest last week. It also has repercussions for Trans-Atlantic relations as US diplomats quietly try to keep Iran from feeding gas into Nabucco.

There was little enthusiasm for Nabucco until Russia, flush with cash from high energy prices, showed its new power by stopping natural gas deliveries to Ukraine on Jan. 1, 2006, over a price dispute. The disruption of supplies to Western Europe, however brief, pushed EU countries to take Nabucco seriously. With Europe increasingly dependent on Moscow - more than a quarter of Europe’s natural gas imports come from Russia - some countries also realized that Russia was not investing enough in its own energy sector to assure long term security of supplies to Europe, its biggest export market. “There is a big possibility of a gas supply deficit due to underinvestment in the upstream production sector,” said Vladimir Milov, a Russian energy expert and former deputy energy minister. Milov warned that Russia might not have enough gas of its own to supply the domestic market and Europe at the same time. It will have to rely on natural gas from Turkmenistan, Kazakhstan and Azerjaiban, which along with Iran are the countries the EU also needs.

The United States is eager to see Europe reduce its dependence on Russian natural gas. “We support the project,” said Matthew Bryza, deputy assistant US secretary of state for European and Eurasian affairs. But he added, “We support Nabucco as a way to help Europe diversify with Caspian gas - but not Iranian gas.” In the region, the US is doing everything possible to isolate Iran by building the Trans Caspian Pipeline. This highly political project would link Turkmenistan to Azerbaijan by pipeline under the Caspian Sea, bypassing Iran and Russia. The US is also working in other ways to stop Europe from getting its natural gas from Iran. One is to tighten sanctions against Iran as a way to put more pressure on Teheran to stop its nuclear enrichment program. These could also act to punish European companies that are active in Iran, a step that US businesses would welcome. Washington imposes penalties on US companies doing deals in Iran.

“When the change comes in Iran, the US wants to be ready,” said an EU diplomat based in the region. “The US wants Iran to ship its gas in liquefied natural gas form onto the world market and not to Nabucco.” In any case, the Europeans are pressing ahead. Reinhard Mitschek, managing director of the Nabucco consortium, said that Europe needed more gas and that Iran was a country in the Caspian region that could provide it. “Over the next 20 years, Europe will need an additional 300 billion cubic meters of gas,” Mitschek said. “At the moment, Europe receives gas from Russia, from the North Sea and from North Africa. We miss the link between the Middle East and the Caspian. That missing link is Nabucco.” He said that when gas started flowing through Nabucco, projected to be in 2012, the first deliveries would come from the Middle East. When the pipeline is running at full capacity, “then gas will come from Iran and Iraq,” Mitschek said. By then, the Europeans are hoping that reformist politicians will have gained the upper hand in Tehran.

Investment banks that have agreed in principle to help finance the Nabucco project, which is expected to cost €5 billion ($7 billion), are skittish because of the risks, especially the uncertainty over Iran. “We need clarity,” said Thomas Barrett, a senior official of the European Investment Bank, which was set up in 1958 by the Treaty of Rome to lend money for projects of European interest. William Stevens of the Royal Bank of Scotland said: “There is the question of Russia’s ability to meet its long-term gas commitments. Russia is overstretched. Nabucco would allow Europe the chance to diversify.”

Other countries are angling for a stake. Azerbaijan and Turkmenistan are tempting Russia with energy contracts, playing Moscow off against Brussels. Azerbaijan, the major partner in the Trans-Caspian Pipeline, has also agreed to sell gas to a new Italian-Greek pipeline in direct competition with Nabucco. Turkey, the crucial transit country for transporting gas from Central Asia to Europe, wants to take what it needs from Nabucco and sell the rest to the EU at a profit. Gazprom, Russia’s giant state-owned energy monopoly is rushing into Central Asia and Southeastern Europe to fend off competition from Nabucco. It has even forged agreements with Hungary and Bulgaria, both shareholders of Nabucco. “The EU has leapt into Central Asian politics,” said Peter Kaderjak, director of the Regional Center for Energy policy and Research in Budapest. “With such big power games in play, I wonder, will gas ever flow through Nabucco?” (iht)

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