I was surprised to learn on a visit to Brussels last week that the confusion is worse than I had thought among Europeans regarding Nabucco, the object of a long and thus-far-quixotic effort to connect Central Asian natural gas supplies with Europe.
Nabucco, a proposed natural gas line intended to reduce Europe's reliance on Russia's Gazprom, has seemed to me until now primarily an American fixation. But it seems that the Europeans are obsessed as well -- and also a bit in denial. In a nutshell, there seems to be a serious need for a primer on Turkmen politics.
First, the background: Back in the 1990s, Washington decided to get behind the construction of a natural gas line from Turkmenistan, with the idea of setting up an East-West axis connecting former Soviet Central Asia and the Caucasus with Europe. The second part of the axis went fine -- Azerbaijan and Georgia proactively pushed for the construction of the Baku-Ceyhan oil pipeline, and a parallel natural gas line. But not the easternmost section of the line in Central Asia, and especially the Turkmen (more on that below), who remain disconnected from the proposed axis today.
Nabucco in fact would be a great project except that 1) there's still no confirmed gas to ship through it, and 2) even if there were, events are changing so fast that it's not clear that anyone would buy it over the 30 years required to make any line economical. But that somehow hasn't kept people from talking about it -- as they did during a panel discussion I participated in, organized by Friends of Europe, in Brussels last week.
> Nabucco Pipeline Map
Friends of Europe is an interesting group headed by a former Financial Times correspondent named Giles Merritt, and Willy De Backer, who used to run an Internet news project called EurActiv. The group's name is misleading, because I wouldn't call Merritt totally friendly -- he smiles a lot but has an aggressive style, which he used last week to repeatedly put European Union energy and industry leaders on the hot seat to explain why they think any European-wide energy policy will ever be possible.
As far as pipelines are concerned, Merritt is right. In the debate, one E.U. representative objected strenuously to a gloomy outlook for Turkmen gas coming to Europe. Why? Because, he said, the Turkmen had told the European Union that this is in the cards, and that they had furthermore suggested that, while a pipeline is not now optimal, perhaps a good first step would be to ship liquefied natural gas or compressed natural gas across the Caspian Sea from the port of Turkmenbashi. As if on cue, a man in the audience identifying himself as a representative of the local Turkmen diplomatic mission said that, yes, it was all true -- Turkmenistan was in favor of the line and did want to start with such shipments.
Call me skeptical. Earlier in the debate, in another context, a speaker suggested that one watch not what people say, but what they do. So let's look back at the last decade and a half of Turkmen statements and actions: They include a refusal to go along with a Bechtel-General Electric consortium in the late 1990s that proposed a trans-Caspian line. As O&G readers recall, the reason was that the companies refused to deposit a $500 million payoff in a German bank for then-President Saparmurat Niyazov. In the late 1990s, Niyazov and several other regional leaders actually went through the charade of welding two pipeline lengths together in the desert as part of the failed bid to lay a natural gas line through Afghanistan; no further lengths were ever added to those orphans.
Time and again, U.S., European, and Turkish government and industry officials traipsed through Ashkabad seeking the Big Man's assent to a pipeline; since Niyazov's 2006 death, they have sought accord with his successor, President Gurbanguly Berdymukhamedov. So far, here has been Berdymukhamedov's bottom line: Build the natural gas line yourselves, and we will use it. Since no one except the Chinese are prepared to be so audacious, that has called the westerners' bluff (though it hasn't stopped them from talking).
So why won't the Turkmen provide the gas? One reason is that they are terrified of how the Russians might react; one can only imagine what precisely runs through their minds in this respect, but in totality it is a palpable fear. Second is that the line of axis is shifting east -- the Chinese are buying Turkmen gas through a line that they built, and the Turkmen are hoping to send more volumes south through Iran and, again, through Afghanistan.
What's left for Nabucco? Well, there is a small volume of potential Azeri gas from the second phase of the Shah Deniz offshore field; the Kurds may make peace with the Baghdad leadership, and send their gas north. All in all, these are not much to hang one's hat on.
Meanwhile, a hurricane has arrived in the form of shale gas, the gargantuan rumble of a new U.S. gas supply that has changed the global energy picture by forcing LNG producers such as Qatar to divert their gas to Europe and elsewhere. As a result, it's not clear that there is sufficient European demand on the horizon to justify Nabucco's estimated $8 billion cost.
In short, Nabucco is being fast eclipsed by events.
Update: Reuters reports that Turkmenistan is signalling a willingness to ship 40 billion cubic meters of gas a year to Europe. Baymyrad Hojamuhamedov, deputy chairman of Turkmenistan's Cabinet of Ministers, said that the majority of the five states surrounding the Caspian had agreed that any two states could connect an undersea pipeline to one another. Here is the emailed response of a State Department official: "I remain skeptical (as do the Azeris), but this is the farthest the Turkmen have gone to date."
As suggested above, the reasons for such doubts are many, including that, unless Russia and Iran are among those saying go ahead, this reported agreement won't mean much. In addition, if this announcement were the words everyone has been waiting for, believe me one would hear shouting from the rooftops in Washington and Brussels. The jury is still out.
Further update: An O&G reader in the audience in Ashkabad when Hojamuhamedov made the statement sends the following: I wouldn't characterize him as saying that 'we want to ship 40 bcm to Europe' but more like 'we'll have 40 bcm which could go to Europe.' The usual cast of characters was there - Neil Bush's presentation could be summed up as, 'My father was George H.W. and brother George W.; also, I helped invent horizontal drilling. Thank you. '