For years the giant Nabucco project has dominated the debate about building a crucial gas pipeline from the Caspian region to Europe – but a far more modest plan from BP may have all the right ideas.
Nabucco, TAP and ITGI have been known contenders for some time, but it was BP that caught the headlines last week as it announced that it is looking to construct a pipeline of its own. The project embodies good economics and smart politics, which is why it is a real contender, and Nabucco and the other proposals should take note.
On October 1, the Caspian-Europe gas corridor took the next step forward as project bids were submitted to the Shah Deniz consortium for Azerbaijan’s gas.
OMV-backed Nabucco is the mega proposal on the table, and goes the furthest in opening up Europe’s third energy corridor by building a pipeline system big enough to transport up to 31bcm per day of natural gas from the Caspian region. At 31bcm Nabucco would become one of the main gas arteries of Europe.
The strategic implications of this are huge. The Nabucco project would seriously dilute Russia’s share on the European gas market. It would also ensure a permanent tie-up of the Caspian basin to Europe by feeding a strong European presence in the Caspian countries, namely in Azerbaijan, Turkmenistan and even potentially Iran. The Nabucco project is also a good long-term answer to the growing gas demand in Europe.
But the politics surrounding Nabucco are turning the project into a drag. The Nabucco team is yet to secure the gas necessary to fill the pipeline. Thus far, only Azerbaijan has gas earmarked for Europe – direct European access to Turkmen gas is not yet a reality. Iran’s gas is off the table due to the effects of the US sanctions. There are other potential political problems that still need to be addressed – like Russia’s serious objection to a trans-Caspian gas corridor, and China’s increasingly competitive offers to take the gas in the other direction.
BP’s proposal takes a step back from all this. The plan is less ambitious politically, but is equally effective in terms of addressing the core objectives behind Europe’s southern gas corridor – bringing new gas volumes to Europe through a secure corridor and at a competitive price.
BP plans to use the existing infrastructure of Turkey and Azerbaijan to bring gas to the Turkish-Bulgarian border where it would be picked up by the Southeastern European Pipeline (SEEP) and transported through Bulgaria and Romania to Hungary and the rest of central Europe.
The proposed line is preferred for three reasons. First, it makes use of the existing infrastructure which will help keep the costs of construction under control, benefiting customers and suppliers alike. Second, the pipeline is based on the existing and available gas of Azerbaijan. And third, the pipeline is targeting southeastern and central European customers. This group is the most vulnerable to Russian energy wars, as Russia currently supplies all their gas. Countries in this region are also shutting down a lot of their old energy infrastructure, outdated coal and nuclear power plants, and upgrading their heating systems in cities to natural gas. The new demand for gas in this part of Europe is substantial, despite worries over slowing growth, and far more than the sceptics admit.
The new BP pipeline project is also better suited than the two Italian options to fit Europe’s strategic energy needs. Like BP, TAP and ITGI have no grandiose political agenda. They are strictly focused on the supplies available in Azerbaijan and taking this gas to Italy via Turkey, Greece and Albania.
But actually, these two projects fall short of addressing the core of Europe’s energy security needs. Italy has many energy delivery channels. Its energy mix is balanced, and the likelihood is that the new natural gas from Azerbaijan arriving in Italy is for the purpose of generating surplus electricity that will then be sold further upstream into the EU grid at premium price to Germany and other countries. So while both TAP and ITGI do help increase total gas volumes available to Europe, they still need to tell us how they are going to better the lot of central and southeastern EU member states, which desperately need access to new sources of energy.
BP’s plan is a late arrival to the table, but it may best balance the commercial and political considerations required to build Europe’s southern gas corridor.
Borut Grgic is a nonresident senior fellow at the Atlantic Council and founder of the transCaspian initiative at the EPC in Brussels. This article was originally published on the Financial Times website.