EU bid to wean itself off Russian gas: Nabucco pipeline

After two consecutive winters that saw Russia briefly disrupt energy supplies to Europe, the European Union has intensified plans to tap directly into Central Asia's natural gas, bypassing Russian involvement.

But Russia last weekend appeared to deal a significant blow to the EU's proposed Nabucco gas pipeline when President Vladimir Putin secured a deal in Turkmenistan for a pipeline that would run north from the Caspian Sea through Russia. Moscow, which buys Turkmen gas at below-market rates, is likely to sell the Caspian gas to Europe at a substantial markup.

"I think the EU's political people will try to play it down, but ... for Nabucco, this definitely is a huge loss," says Zeyno Baran, a Central Asia expert at the conservative Hudson Institute in Washington.

The deal follows renewed attempts in recent months from EU leaders – who will meet with Mr. Putin Friday in the southern Russian city of Samara for a two-day summit – to define a unified energy-security policy. That policy, some analysts say, hinges on Nabucco and on becoming less dependent on Russia, the world's largest exporter of natural gas, which annually supplies 25 to 40 percent of Europe's natural gas.

Russia is countering the EU's efforts with moves of its own. Gazprom, the state-run energy giant that produces more than 90 percent of Russia's gas and owns most of the country's pipelines, has spent this year securing new long-term supply contracts with European energy distributors and buying into European pipeline networks.

Putin is reaching out to EU countries along the Nabucco line, trying to turn their support to a Russian alternative, an extension of Gazprom's so-called Blue Stream pipeline that would run essentially parallel to Nabucco from Turkey to Hungary. The Hungarian government in late March broke with Brussels and said it would consider supporting Blue Stream.

Nabucco 'neither dead nor delayed,' say project overseers

But despite Russian efforts to undermine the $6 billion Nabucco pipeline, which enters its engineering phase next month, the project has not been derailed, says the five-member consortium behind it.

"It is neither dead nor is it delayed. Our main activities are on schedule," says Reinhard Mitschek, Nabucco's managing director. "Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project."

Nabucco, which is overseen by a consortium of five European energy companies – one from each of the five countries the pipeline would cross – is scheduled to break ground in 2009 and involves several construction phases. The pipeline is expected to be on line by 2012, pumping gas in an initial phase between Turkey's borders with Georgia and Iran along a 2,050-mile route through Turkey, Bulgaria, Romania, and Hungary before ending in Austria, which would then distribute the gas across other European networks.

The pipeline would eventually pump gas from the Caspian region, including Iran, Iraq, and Russia – but would remain under European control, Mr. Mitschek says. At full operation, the pipeline is expected to supply Europe with 31 billion cubic meters of gas a year. Future plans call for the pipeline to be extended to Turkmenistan and Kazakhstan.

Even with Nabucco, EU would still be dependent on Russia

But few analysts say Nabucco would allow Europe to break free from Russia altogether. The fact is, says Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University, Europe's demand for natural gas, which could very soon replace oil as the continent's dominant energy source, is increasing too quickly.

That increase in demand conflicts with a decrease in natural gas production in Europe. By 2030, Europe could need to import as much as 80 percent of its natural gas, Prof. Ghadar says.

"Even if Nabucco happens, the reality is you really need more gas. The reality ... is that the gas is in Russia and it's in Iran. Right now, the Russians basically have a stranglehold on this whole thing," he says.

But Russia has its own dependencies, says Friedemann Müller, an energy expert at the German Institute for International Security Affairs in Berlin.

"Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas," says Dr. Müller. "This is a power game, and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance."

Lack of unity stalls EU pipeline projects

The EU has not moved quickly on the Nabucco project – originally scheduled to break ground next year – or other proposed pipeline projects, most of which are meant to diversify ways Europe receives Russian oil.

"The fact that Europeans have been talking about and delaying these things for so long really does suggest that such projects are not a high priority in any reasonable sense," says André Plourde, president of the International Association of Energy Economics.

One reason, analysts say, is that Europe is not as united on the threat of Russia's energy dominance as it seems. The newer member states, which made up the former Soviet bloc and still depend on Russia for a greater percentage of its energy than Western Europe, feel they are more vulnerable. Countries like Germany and France, are more pragmatic, seeing the EU and Russia as interdependent.

"This is a security and foreign policy issue, and it's about Europe being a united group," says Ms. Baran of the Hudson Institute. "Europe needs to look at energy not as something that heats the houses, but look at it increasingly as a security and foreign policy perspective because Putin uses it as such."