|
|
||
|
July 2010 Issue #66 The Nabucco pipeline, and supply politics |
||
|
|
||
|
Last month’s MZINE article on the Nabucco pipeline discussed market demand issues and whether the project will have a significant market to sell to following the recent decline in gas demand as a result of the recession. This month’s article covers the supply aspect of the Nabucco pipeline, an issue which has threatened to significantly hinder the chances of the pipeline’s implementation if not successfully resolved. With the Final Investment Decision expected late 2010, the Nabucco consortium must source themselves the 31bcm/yr of gas they plan to export from the Caspian Sea and Middle East region to Central and Western Europe. A number of nations have been linked as supply sources to the Nabucco pipeline project since plans for the €7.9 billion project were initially announced in 2002, with Azerbaijan and Turkmenistan the most prominently linked as the baseload supply source. In early June 2010, the Nabucco pipeline project took a significant step forward as the Turkish and Azerbaijani (Azeri) ministers signed a contract covering the export and transit of Azeri gas through Turkey. The agreement entails supplying gas from Azerbaijan’s Shan Deniz I & II developments. The two parties have reached an agreement on the price and quantity of gas to be exported from the Shah Deniz II project, which is due to come on-stream in 2017, to Turkey. This development will be providing around half the key baseload for Nabucco. This article considers the political background to this deal and assesses some of the challenges ahead.
Azerbaijan was originally highlighted as one of the key suppliers to the Nabucco project, however, recent political debate between Azerbaijan and Turkey combined with Russian interest in Azeri gas had cast some doubt over the recent agreement. Azerbaijan has estimated proven gas reserves of 1.31 tcm, which in accordance with CIA country comparison ranks Azerbaijan as containing the worlds 19th highest quantity of proven gas reserves. The nation’s leading gas developments are the Azeri-Chirag-Gunashli (ACG) and Shah Deniz gas fields, the latter being the gas field earmarked to supply around 8 bcm of gas out of the planned total 31 bcm Nabucco hopes to export. Recent political debate between Turkey and Azerbaijan had delayed and damaged their recent negotiations to supply Nabucco. Part of the political disagreement was due to Turkey’s recent rapprochement with Armenia, whom Azerbaijan have a history of conflict with due to the Armenians continued occupation of the Nagorno-Karabakh region. Though this political debate did appear to have some effect on the contractual negotiations, it is also equally possible that President Aliyev of Azerbaijan was using this volatility as a negotiation tool in order to secure Azerbaijan a more profitable deal from Turkey and the Nabucco consortium. It is also possible that he intended to use their gas supplies as a potential carrot to the EU, in order to gain a positive resolution in the Azeri’s favour in relation to the Nagorno-Karabakh conflict; however a resolution from the EU on this issue is yet to come to fruition. To further complicate negotiations Russia, expressed a readiness to purchase large volumes of gas from Azerbaijan, whilst also expressing a desire to make a bid to develop sections of the Shah Deniz gas field. This interest from Russia put President Aliyev in an effective position to broker an economic deal for his nation; essentially Aliyev was able to auction off the gas to the highest bidder – pitting Russia and Turkey against each other. The Russian’s enthusiasm to purchase Azeri gas has drawn particular interest, and has been perceived by many as a belated attempt by the Kremlin to disrupt Europeans attempts to diversify their supply through Nabucco. Azerbaijan have two major options available to them in order to help them become a major exporter of gas which appears to be its main strategic goal in terms of utilising Azeri gas reserves. The first option for Azerbaijan was to export its gas to Europe through Russia whilst the second option was to export to Europe via Turkey and the Nabucco pipeline. It appears Azerbaijan are attempting a combination of the two, however, the biggest export potential for them does seem to be through Nabucco there will be more opportunity to supply larger quantities than through Russia which already has large quantities of its own gas. Note: Azerbaijan and Russia have already signed a deal to annually sell 500 mcm of natural gas to Gazprom starting in 2010, and President Aliyev has been quoted as saying that this deal was just the starting point and that there was ‘no limit’ to the amount of gas Azerbaijan could sell to Russia. In fact this deal may well be expected to be extended as Baku has offered Gazprom the opportunity to increase its annual rate of 1 to 2 bcm of gas by 2011.
Where else is Nabucco sourcing its gas from? Having established Azerbaijan as the first major supplier for Nabucco whom has signed an agreement to supply Nabucco, it is important to establish where the rest of the 31 bcm/yr is going to come from. Turkmenistan is the other major supplier which the Nabucco consortium hopes will provide up to 10 bcm of the projects baseload quantity. However, this deal is yet to be concluded and similarly to the Azerbaijan case Turkmenistan have other business interests they are actively seeking which could jeopardise their potential involvement in Nabucco. Turkmenistan is already involved in large scale projects to supply China and central Asia, through the 1,139 mile China-Central Asia pipeline connecting Xinjang with Turkmenistan, Kazakhstan and Uzbekistan. Turkmenistan has also commissioned an East-West pipeline to export 30 bcm from its onshore gas fields to the Caspian coast, although a deal to supply Nabucco has yet to have been concluded. As it stands, Turkmenistan is currently undergoing negotiations with Turkey over the supply of gas to the Nabucco pipeline, as well as the issue of how the gas would be carried over the Caspian Sea. Turkish minsters are hopeful of concluding a deal, especially as the two nations already share a good economic working relationship through the construction sector. RWE, the company contracted to the Turkmen government to solve the transport dilemma and help create an improved gas transport infrastructure believes a deal to supply Nabucco will be in place by the end of 2010: Stefan Judisch, chief executive of RWE Supply & Trading stated that ‘as soon as the political framework has been created, Turkmenistan will be ready to sign a supply contract, the timing depends on the speed of the political decision processes’. While an agreement with Nabucco appears likely, it is worth taking a note of caution that Nabucco is not the Turkmen government’s only option and with a successful arrangement with China already in place, Turkmenistan’s involvement shouldn’t be taken for granted. The Turkmen President was quoted by one source as stating this: "[The delay] is incomprehensible," the source said. "The President has clearly said that 'our priority is to diversify. We will sell any amount to anyone so long [as the sale takes place] at the Turkmen border.' They have a pipe on their side; we have the gas on our side. [The arrangement with] China works well," the source added citing the recently operational Turkmenistan-China gas pipeline as a model of how new, non-Russian customers can be cultivated. Other potential supply avenues With Turkmenistan and Azerbaijan set to supply around 20 bcm of the total 31 bcm, where else does the Nabucco consortium plan to extract gas from? Iran and Iraq have both been mooted as possible supply sources with the latter being the more probable. However, both nations have large political obstacles to overcome, and are both subject to volatility and insecurity within their respective nations which mitigates their potential. With Iran currently in political conflict with the EU and US over its Nuclear regime and heavily sanctioned it is unlikely that they will ever supply Nabucco due to a lack of political support. However, currently the security situation in Iraq in conjunction with continued disputes with the Kurdish government over the distribution of energy wealth significantly lowers its chances of supplying Nabucco. Aside from these two nations, Egypt is another possible supply source which has fewer political issues and already has the support of BP ready to develop gas fields for Nabucco. The recent agreement signed between BP and the Egyptian Petroleum Ministry in July to develop hydrocarbon resources may increase Egypt’s role as a European supplier and potential supplier of Nabucco. With BP a major partner of the German company RWE, who have a 16.67% stake in the Nabucco project, Egypt’s potential as a Nabucco supplier appears more likely than that of Iran or Iraq. Furthermore, Petroleum Minister Amin Sameh Samir Fahmy stated that his country is considering the possibility of connecting the Pan-Arab gas pipeline to Nabucco to supply its own gas via the route. In conclusion, the first big step towards the Nabucco pipeline has been realised by Azerbaijan, the Nabucco consortium will hope this paves the way for further progress. However, there are many political obstacles along the way to be overcome, and with a number of its potential supply sources showing a lukewarm interest in the project it may well be that the initial export estimate of 31 bcm/yr will need to be revised until more gas can be secured for export. With Azerbaijan’s supply subject to the development of the Shah Deniz gas field, and Turkmen gas supply yet to be secured in a contract and also pending transport infrastructure being put in place, it seems it will still be some time before we see any gas from the Nabucco pipeline.
|
||
|
|
||
|
MJMENERGY LTD have provided all the information in this newsletter
free of charge to anyone who wishes to read it. We cannot be held
responsible for any inaccuracies although all information is
believed to be correct at time of publication. Whilst articles
published in this newsletter often carry a particular point of view,
publication of them does not imply that we necessarily agree with
them. Anyone wishing to contact the editorial team with regards to
any of the above articles should email: editor@mjmenergy.com, or
|
||
|
|
||
