Wednesday, 25 April 2012

Hungarian Surprise Exposes Crisis of Confidence in Nabucco

Below is my latest article for Natural Gas Europe, original here:

In a surprise late-game announcement, Hungary has apparently switched its support from Nabucco to Gazprom’s rival South Stream pipeline, leaving the once-mighty pipeline consortium looking weaker than ever. If, as rumoured, Hungary’s MOL is pulling out of the project, it may – as analysts are already predicting - be a ‘terminal blow’.

The news emerged on 23 April at an event hosted by the European Policy Centre in Brussels, at which one of the speakers was Hungary’s controversial, Eurosceptic Prime Minister Viktor Orbán. When asked to comment on a 17 April meeting with Russia’s Gazprom at which two sides discussed giving South Stream “national significance status”, Orbán focused his response on the woes of Nabucco.

“Nabucco is in trouble”, he said, and that although he did not have all the details, “what I have seen is that even the Hungarian company MOL is leaving the whole project”. His comments prompted a flurry of articles saying that MOL was pulling out of the pipeline to bring gas from Azerbaijan’s Shah Deniz field to Europe. A decision on either a southern or central European route will be made by June – if a central European route is chosen, the contest will be between BP’s South East Europe Pipeline and a shortened version of Nabucco.

At the time of writing MOL had not confirmed the rumours that it was leaving the consortium, which also includes Bulgaria’s BEH, Turkey’s Botaş, Austria’s OMV, Germany’s RWE and Romania’sTransgaz. But nor had it fully denied them, simply stating that “there are many uncertainties around the Nabucco project that would be hard to ignore”, particularly financing and supply.

The Nabucco consortium said that “we have not had any indication” that MOL’s position was changing. In response to an emailed enquiry on Orbán’s remarks, the consortium’s press spokesman Christian Dolezal insisted that Nabucco “is seeing strong progress” and noted the list of legal and technical milestones which the project had made so far. Dolezal also downplayed the implications of an MOL pull-out, pointing out that other shareholders would take up its stake or a new member would join (Germany’s Bayerngas has been discussing that possibility since September).

But MOL’s ambiguous statement and the lack of clarity from Nabucco will hardly reassure sceptics: it suggests that the company is indeed on the way out.
In one sense this is not particularly significant. Nabucco has already been battered by a rival projects, a truncated route, questions about funding, and a lack of supply. Losing a stakeholder would be another blow to the project’s confidence but no more than any of other recent setbacks. If MOL does indeed withdraw its place may be taken by other stakeholders or by Bayerngas. Nor would Orbán’s decision to switch Hungary’s support to South Stream be all that significant. That pipeline has many problems, and securing transit rights through Hungary is not one of them.

The political angle also needs consideration. Orbán has repeatedly clashed with Brussels over his refusal to toe the EU fiscal line and his perceived authoritarian streak.
Rejecting Nabucco in favour of South Stream may be a cheap way to irritate the EU, but it shouldn’t be ruled out as a motive. Given that his comments came during a trip to discuss contentious bailout terms with European Commission President Jose Manuel Barroso, Orbán’s apparent schadenfreude over Nabucco may say more about his relationship with Brussels than about the pipeline’s commercial backing.
Indeed there is even some confusion on who has responsibility for the project. Orbán insisted that Nabucco is a company decision. It’s not the authority of the government”, but an EU spokeswoman told Bloomberg that the Nabucco agreement was with the Hungarian government, not MOL. Dolezal’s email, in which he emphasised the intergovernmental nature of the agreements, supports this interpretation.

So, a storm in a teacup? Perhaps. But even if Orbán was stretching the truth somewhat, MOL’s lukewarm response to the allegations has not inspired confidence and indicates that it is indeed considering a withdrawal. The consortium could live with that, but the danger would be a sudden collapse in confidence and a race for the exits. RWE, which has had its own doubts, might also decide to cut its losses. It is that crisis of confidence which Orbán’s remarks expose.


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