July 18, 2009
Europe Needs Diversified Energy Strategy
By Borut Grgic
After Gazprom signed a deal with Azerbaijan for 500 million cubic meters of gas, the Nabucco bunch got together in Ankara and agreed on a legal basis for the 3300 kilometer long pipeline which will connect the European market to the Caspian gas.
The race for Caspian resources is in full swing. China is pushing forward with plans to build a direct pipeline from Turkmenistan, which is said to have the largest reserves of natural gas in the region. Iran, too, has entered the bidding game, most recently making an offer in Baku to buy all of Azerbaijan’s gas.
With the exception of the Nabucco project, the buyers are negotiating directly with the suppliers. This is also why last week’s agreement in Ankara is not really a deal. Nabucco is an infrastructure project, and the buyers and sellers still have to negotiate the purchase terms and the transit fees. Ankara has already shown how difficult this can be.
It is too risky to build Nabucco alone. This will force suppliers to depend exclusively on Turkey’s good will to honor its transit obligations, and it puts Europe in the same position with Turkey as we have today with Ukraine. We need to better address the perception that Turkey is indispensable in Europe’s quest for Caspian supplies if we want Ankara to be more reasonable on the transit agreement, and a better long term partner to Europe on energy security.
Turkey is asking for a fifteen percent lift-off on the gas that will pass through the Nabucco line, arguing it needs this gas to satisfy its home demand. Ankara is also pushing Azerbaijan, which is to be the first supplier of gas into the Nabucco line, to sell gas to Turkey at a discount. The pressure on Baku to yield to its Turkic brethren is enormous. If Baku gives in to Ankara’s demands Europe will be the end loser. Fifteen percent lift-off is unreasonable. Turkey doesn’t need this gas, but it wants to sell it at premium price to Europe. Why should Europe overpay for its gas just so Turkey can play the energy supplier role? Also, Azerbaijan has no interest in selling its gas for cheep to Turkey when Russia is offering a higher price. Baku could strike an even bigger deal with Moscow for a better price leaving Europe even more dependent on Russia.
To better balance risk and access to Caspian gas, Europe needs to diversify its pipeline strategy from Nabucco to Nabucco plus one. As we switch from coal-fired power plants to new modern gas-fired outfits in Europe, the demand for gas will grow exponentially.
This warrants a two-pipeline strategy. South Stream, the Kremlin backed project is a good second option. Having Russia as a partner in supplying Caspian gas to Europe, but not controlling it, and with Turkey carrying the bulk of the Caspian supplies nobody will feel left out.
Today the policy makers in Brussels are focusing exclusively on Nabucco, and this is counterproductive in terms of building a sustainable southern gas corridor for Europe.
Borut Grgic is the founding-director of Institute for Strategic Studies.