Nabucco: “Pie in the sky” after Georgia crisis?

The Georgia crisis prompted many analysts to look at the situation on the ground “with their energy spectacles on”. While most commentators stop short of saying that the main thrust of the Russian advance in Georgia was pipeline politics, all seem to agree that doubt has been cast as to the reliability of Georgia as a major transit country to bring oil and gas supplies to Europe. In particular, the Nabucco gas pipeline is seen as a direct victim of the developments.

Georgian officials have been complaining for a long time that their country has become a victim of pipeline politics. President Mikheil Saakashvili reportedly claimed that the very fact that Georgia is already home to an oil line, the Baku-Tbilisi-Ceyhan (BTC) pipeline, designed with the precise aim of circumventing Russia in mind, was a major reason for the Russian assault.

One branch of the BTC, which runs from Azerbaijan on the Caspian Sea through Georgia and then on to Turkey’s Mediterranean coast for shipment, ends at the Georgian port of Supsa, which was blockaded by the Russian navy during the current crisis. “Russia is showing it controls this corridor,” says Giorgi Vashakmadze, an energy executive in Georgia, quoted by the Wall Street Journal. “The Caspian region is wondering what this means for the future,” laments Vashakmadze. “After the military conflict with Russia, Georgia cannot be marked on oil and gas maps as a safe transit route, and no amount of support from NATO can change this alteration,” says Pavel K. Baev, research professor at the International Peace Research Institute in Oslo, quoted by the Moscow Times.

Regarding the Nabucco project, Ed Chow of the Center for Strategic and International Studies is quoted by the Washington Post as saying Russia has raised serious doubts in the minds of Western lenders and investors, that such a pipeline through Georgia would be safe from attack or beyond control of the Kremlin. He adds that this pipeline “has always looked more like a diplomats’ pipe dream than a viable economic project”. “Its promoters had not only failed to secure supply and transit agreements but also had yet to identify an oil company eager to champion the project and finance the pipeline,” states Chow.

The press agency Forbes also notes that while Russian troops are still in Georgia, the Russian state-controlled natural gas monopoly Gazprom has offered to buy all of Azerbaijan’s gas exports. If Azerbaijan agrees, it could spell disaster for Western plans to decrease reliance on Russian supplies of natural gas. But, as with Russia’s occupation of Georgia, the West will have little opportunity to stop the deal, says a Forbes analysis.

POSITIONS

Sergei Blagov from the International Relations and Security Network in Zurich argues that in order to attain their goal of weakening the reliability of Georgia as a transit country, the Russian military had in fact no need to hit the pipelines. He says that “a mere demonstration of force apparently was enough to put tremendous psychological pressure on both suppliers and consumers”. “During the conflict, Russia’s Black Sea Fleet patrolled Georgia’s coast, apparently indicating that the task to transport crude oil from ports to international markets could become a challenging objective,” Blagov elaborates further.

Steve Mufson of the Washington Post writes that one European oil company executive told him that the Nabucco project was simply “not a doable project, because there is not enough gas to justify the investment,” at least without Iranian gas coming into it. “The only thing that can make it viable is by using Iranian gas,” the oil executive further elaborated, adding that otherwise it is a “pie in the sky.” American policymakers, he said, “want to have their cake and eat it too. They want to keep Europe from using Russian gas and they want to keep Iran in a corner too”.

Dr. Brenda Shaffer, an expert on the Caucasus from Haifa University, is quoted by the daily Haaretz as saying that the West “can now forget” about the Nabucco project. “We can forget about that project now. Russia has made that very clear. Russia did not invade Kazakhstan, but rather a small country that is a bottleneck between Central Asia and the West.

No one will want to take the risk of angering the Russians again,” said Shaffer. Peter Charles Choharis from the American Security Project writes for the Wall Street Journal that as a response to the Georgia crisis, the US needs to use its diplomatic and financial clout to put forward alternative energy routes. “Washington must make financing and constructing the Nabucco gas pipeline a top priority,” Choharis writes. (Euraktiv)

Background:

EU dependency on Russian gas imports is currently at 40% and is expected to rise considerably in the coming decades unless supply sources are diversified and/or greater emphasis is placed on locally generated renewable sources of energy.

The Union, which is also strongly dependent on Russia for its oil, has already borne the brunt of Moscow’s “pipeline politics”, notably when the country cut gas deliveries to Ukraine (in 2006 and again in 2008) and switched off the oil tap to Belarus, leaving several European countries without a supply.

The US has long been pushing for the construction of oil and natural gas pipelines from the Caspian basin that would bypass Russia, especially via Georgia. But Russian President Vladimir Putin ended his term by sealing a deal on the South Stream gas pipeline, a project perceived as a rival to the EU’s flagship Nabucco pipeline. At the same time, Russia is offering deals to countries from the Caspian basin to buy their gas “at world market price”.