Georgia-Russia conflict shows EU's energy vulnerability

This week's offensive is the latest setback to plans for the Nabucco pipeline, designed to wean Europe off Russian energy giant Gazprom.

Russia's invasion of Georgian territory last week, in addition to reasserting Moscow's military strength, has complicated Europe's effort to diversify its oil and gas supplies away from the growing dominance of Kremlin-controlled energy giant Gazprom.

In the post-Soviet era, and particularly since 9/11, Central Asia has become a central focus for Western countries looking for more secure energy sources.

But this week's offensive, during which British Petroleum shut down an oil pipeline and temporarily stopped pumping gas through Georgia, has called into question plans for a Eurasian corridor free from Russian interference.

"The Caspian region is wondering what this means for the future," says Giorgi Vashakmadze, an energy executive in Georgia. "Russia is showing it controls this corridor."

The Russo-Georgian conflict is the latest in a series of setbacks for Europe's planned Nabucco pipeline – its best hope of weaning itself off Gazprom, which set off alarm bells by cutting crucial gas supplies to the continent in the winters of 2006 and 2008.

Hype surrounding Nabucco has grown more measured in recent months over concerns about the extent of available gas reserves.

Barring the construction of a pipeline under the Caspian Sea, the only way for Europe to get gas from the region is to tap pipelines that originate in either Russia or Iran, as Nabucco may have to do.

Europe's demand for gas is expected to rise more than 50 percent by 2025, according to the US Deparment of Energy.

"There is not enough gas in the region," says Fariborz Ghadar, an energy specialist and director of Penn State's Center for Global Business Studies. "The Nabucco pipeline now is dependent not only on gas from the Caucuses and from east of the Caspian, but also from Iran."

That prospect is unpalatable for the US, which continues to press Iran on its nuclear ambitions. The State Department this week told Turkey, which is hosting Iranian President Mahmoud Ahmadinejad, that it would withdraw its support – seen as politically important – for Nabucco if the pipeline pumps Iranian gas.

Europeans, meanwhile, harp more on the involvement of Russia, which already supplies Europe with 20 to 40 percent of its gas. Gazprom is expected to feed Nabucco through its Blue Stream pipeline, which would meet it in Turkey, and the company already owns a 50 percent stake in Austria's Baumgarten gas hub, where Nabucco would eventually end.

"This goes against the whole concept of Nabucco, that it would not be either Russian or Russian-controlled gas," says Zeyno Baran, an energy and Central Asian expert at the conservative Hudson Institute in Washington.

Nabucco is expected to be online by 2013, pumping gas along a 2,050-mile route from Georgia to Austria, which would then distribute the gas across Europe. But the six-year-old project has been mired in setbacks this year.

In January, Bulgaria and Hungary inked a deal supporting Gazprom's South Stream pipeline, which would run parallel to Nabucco. In February, the six-member consortium of European energy companies overseeing Nabucco's construction pushed back ground-breaking one year, to 2010, citing environmental-study delays. In May, it announced that the pipeline's cost had increased nearly 60 percent, largely due to rising steel prices. And to date, Nabucco has only received one supply order, from Bulgaria, but only for 1 billion cubic meters (bcm) of Nabucco's expected 35 bcm capacity.

The frankness with which Nabucco authorities are now talking about Russian involvement as a supplier, represents a shift from the political to the pragmatic.

"Nabucco was not planned to be an anti-Russian project, but to be a pro-European project," says Christian Dolezel, a Nabucco spokesman. "The main focus is to transport gas from alternative sources."