Natural Gas Europe -‘Nabucco West’ Heralds the End of the Southern Corridor Vision

Below is my latest article for Natural Gas Europe. Original available here.

Nabucco is dead – long live Nabucco. That seems to be the message of the revised concept for the huge, flawed Caspian pipeline. Although some changes were necessary given the challenges facing the project, the implications for the EU’s Southern Corridor strategy, and its broader policy goals in the region, are serious.

Nabucco has been declared all but dead for several months due to lack of confirmed suppliers, lack of financing, shifting trends in global gas markets, and competition from more nimble rival pipelines. It remains on the table as an export option for Azerbaijan’s Shah Deniz Phase Two gasfield, but was widely considered to be the least likely choice.

In particular the unexpected decision by Turkey and Azerbaijan to build a Trans-Anatolian Pipeline, thus replacing much of Nabucco’s planned route with a smaller capacity, essentially turned the project into a south-eastern European pipeline (or southern Europe if the pipeline runs to Italy).

The new ‘Nabucco West’ acknowledges these realities. According to media reports, Nabucco West will run from the Turkish-Bulgarian border to Austria’s Baumgarten hub. BP, which heads the Shah Deniz consortium, has called the revised proposal a “big step forward” and has accepted that the pipeline could be fed from the TANAP pipeline. This is expected to be able to carry around 16 billion cubic metres per year, around half the capacity of the original Nabucco pipeline.

The Nabucco consortium’s acknowledgement of these realities (even if the original route and capacity remain on the website) indicates that the original plan is finished. The 16bcm/year which will be produced from Shah Deniz Phase Two from 2017 will therefore be sufficient to fill the Southern Corridor’s gas route, for the foreseeable future at any rate.

So Turkmenistan, which has become increasingly vocal about sending its gas west, now appears to be shut out in the cold. Securing supply from Turkmenistan had problems, but both the RU and Turkey had invested substantial political capital in enlisting Ashgabat as a potential European gas supplier.

This effort is still ongoing. In early March the latest round of trilateral talks between the EU, Azerbaijan and Turkmenistan on building a Trans-Caspian Pipeline concluded; EU Energy Commissioner Gunther Oettinger has also said that he would like talks on the project concluded “as soon as possible.” No breakthroughs have been made yet and the talks are mainly technical in nature, but the EU at least seems determined to continue the process.

However even if the talks could manage to overcome Russian and Iranian opposition (which is doubtful in the extreme) the commercial and supply imperative to link Turkmenistan into the Southern Corridor has been greatly reduced. Although as I wrote recently, Turkey may be interested in buying Turkmen gas for domestic consumption, Ankara has little weight in Trans-Caspian Pipeline negotiations and is unlikely to buy enough gas to make it worthwhile for Turkmenistan to head west. Azerbaijan, which has new gasfields under development, has little interest in angering Russia and Iran in order to see its position at the heart of the Southern Corridor undercut by Turkmen gas – which, once the expensive infrastructure has been accounted for, be cheaper than Azerbaijani gas.

EU engagement with Turkmenistan, manifested in regular visits of senior energy and political officials to Ashgabat, will become increasingly hollow. This may make the EU more inclined to prioritise human rights and democracy, both of which are utterly stifled in Turkmenistan, but the likelihood is that the country will simply become less relevant for European policymakers.

The decision to abandon the grand dreams which both the Nabucco consortium and the EU have harboured for years – bringing Turkmen, Iraqi, Azerbaijani and (one day) even Iranian gas to Europe – makes sense. It reflects the commercial and political realities of the present. But it also redefines the Southern Corridor much more narrowly, reducing it to Azerbaijan and excluding other supply sources, notably in Central Asia.

Azerbaijan is a reliable supplier, but the point of the Southern Corridor was that it was to rely on a diverse range of gas sources. Any long-term supply disruptions in Azerbaijan would essentially shut down Europe’s Caspian gas route.

From a political point of view, the downscaling of the Southern Corridor is likely to limit the EU’s engagement with the wider region. Turkmenistan’s link to the west is likely to be broken, forcing it to reorient towards Russia, China and Iran. Rightly or wrongly, the search for energy supplies has been a key driver of Europe’s entry into the Caspian region. The end of Nabucco suggests that for now, at least, that driver has come to a halt.