Saturday, 4 June 2011

US energy envoy weighs into the Nabucco debate

Richard Morningstar, US Special Envoy for Eurasian Energy, has been fairly quiet recently. Given his vocal and influential lobbying for the BTC oil pipeline from the Caspian in the 1990s, this is surprising. Once again, the region has an opportunity to free itself from Russia's energy stranglehold through an ambitious and politically complex pipeline - yet Ambassador Morningstar's lobbying on behalf of Nabucco has been lackluster, in public at least.
So, just when the project appears to be on its last legs, Nabucco supporters were no doubt cheered by Ambassador Morningstar's supportive statements on Friday. Speaking before a House of Representatives subcommittee, he said that the US "strongly supports the establishment of ... the so-called Southern Corridor, to bring natural gas to Europe, via Turkey, from the Caspian and potentially other sources beyond Europe's southeastern frontiers", highlighting Nabucco. Providing gas to parts of Europe that need in most is "in line with U.S policy goals", he added, as it diversifies European supplies away from Russia.

He highlighted the complex position of Iran. Official longstanding US policy involves sanctioning companies which engage in business with the Islamic Republic. However an Iranian subsidiary of NIOC, the national energy firm, owns 10% of Azerbaijan's enormous Shah Deniz gas field, which will probably provide the lion's share of Nabucco's initial supply. 

Amb. Morningstar, in a quite candid acknowledgment of the tensions in trying to 'contain' Iran in the Caspian whilst unlocking the region's energy, said that sanctioning Shah Deniz would kill the possibility of its gas going to Europe, undermining the entire Southern Corridor. More concerningly for US policy, Amb. Morningstar noted, was the likelihood that the enormous reserves of Shah Deniz would go to Iran, Russia, or even China. 

His admission of this problem is welcome, as does his support for the Southern Corridor. But it remains unclear whether Amb Morningstar is able to turn these good intentions into practice. This would involve lobbying in Washington, to ensure that hawks do not seek to scupper the Shah Deniz project because of the participation of NIOC. This is not an issue that is particularly high on the agenda in Washington, however, and to date the Obama Administration has shown no inclination to start sanctioning a project which would benefit Europe's energy security.

The more challenging part of Amb. Morningstar's task is to start lobbying abroad, in Europe and in the Caspian, to encouraging some traction on Nabucco. European governments remain fairly noncommital, partly because of a decline in gas consumption. This is both a challenge - as it weakens European appetites for spending financial and political capital on an ambitious, expensive gas project - and an opportunity, since it limits the ability of Russia's Gazprom to make more attractive and more realisable offers. Indeed, the Russian energy firm has already admitted that the decline in European demand has hit it extremely hard, alongside a tax hike on natural gas extraction.

More concerningly, Caspian producer states are lacklustre about Nabucco and unwilling to firmly commit any gas. Commercial and political squabbles, and a lack of coordination, have caused friction and misunderstandings between Ankara and Baku, Baku and Ashgabat, and Ankara and Erbil. 

Amb. Morningstar, with his experience on the region and armed with the full backing of the White House, might - just might - be the man to get the whole Southern Corridor moving again. It will take a lot more than an appearance before a House subcommittee to do so.

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