Well the death of the Nabucco pipeline seems to have finally arrived as I (and many others) have predicted years ago. It was, of course, doomed to failure from the outset, not because of the idea or reasoning behind it both of which are sound, but because of the parties involved and the geopolitics.
Unsurprisingly, the Nordstream gas pipeline is now open and supplying gas directly from Russia to Germany removing at least some German/EU and Russian dependence on Ukraine as a transit route.
So why has Nabucco died? Well for a start Azerbaijan and Turkey have eventually signed an agreement on any transit line through Turkish waters which you would think would be a step in the right direction rather than its death, but you would be wrong.
The death of Nabucco relates to putting enough gas into the pipeline at the Azerbaijani end of the pipe. Nobody was ever quite sure where the 30 billion cubic meters of gas to be pumped through Nabucco was going to come from. The existing Shah Deniz field doesn’t produce that much gas in a year, there were and are additional risks by asking Turkmenistan to make up the difference by pumping into the same pipeline, and the latest Azerbaijani discovery, the Absheron field is some way from being developed.
None of this took into account the shares holders in the existing and highlighted Shah Deniz field which is not solely run by the government in Baku. As in most cases there such ventures are joint ventures and the Shah Deniz field has several major stakeholders. Stakeholders begin to worry about risk when other suppliers are needed to connect to the artery they push their product through as it allows external influences and actions that were never in the risk assessment model.
It is of course typical EU grandiose thinking to decide on a 30 billion cubic meter per year pipeline (not to mention 20 billion Euro price tag) ahead of knowing exactly where all that gas will come from. It shows the awareness and risk analysis similar to creating a common currency without any common fiscal directives to run along side it, and we are all aware how that has turned out.
Anyway, BP, a major stakeholder in the Shah Deniz field has effectively pulled out of Nabacco and offered up its own, smaller 10 billion cubic meter per year alternative. Thus, Nabucco is no more as there is no supplier of gas.
Good news for Ukraine you would think. There is now only Nordstream and Ukraine as routes for Russian gas to the EU and no route from the Caspian Sea at all.
Alas, whilst Nabucco remained a pipe dream, Ukraine remained fairly secure as a gas transit route. Nabucco was never going to work, everybody new it except those in ivory towers, but so long as the Nabucco pipe dream continued no other Caspian alternatives would be considered before this EU flagship pipe line.
The simple fact that Nabucco was as ill-fated from the onset as the Mary Rose, a similarly grand flag ship that barely made out of Portsmouth harbour, is all rather irrelevant to the planners within the EU.
Now however, whilst the Russian/EU South Stream pipeline plans may be on the back burner, to the point EU institutions are making promises of funds to upgrade the Ukrainian gas transport system with Russia and Ukraine, the Caspian Sea issue becomes a very real threat as far as Ukraine is concerned.
With Azerbaijan and Turkey in agreement over undersea routes, BP whilst pulling the plug on Nabucco has submitted a plan called the South East Europe Pipeline (SEEP). Also submitted some time ago, but largely ignored was the Trans Adriatic Pipeline (TAP) amongst others.
All these smaller proposals envisage 10 billion cubic meters per annum delivery from Azerbaijan. All these smaller proposals have quietly continued to jump through the geopolitical and sub-sea survey hoops. Statoil and partners E.On, Ruhrgas and EGL would seem to have stolen a march with the TAP pipeline when it comes to the bureaucratic requirements and are probably ahead of other smaller project submissions in this regard.
BP and SEEP are some way behind.
It is also worth mentioning that Statoil and BP are equal partners in the Azerbaijani Shah Deniz field which could make things quite interesting as far as that partnership goes.
Regardless, the demise of Nabucco is not a blessing for Ukraine as it was a threat that was never likely to happen. The alternatives, however, are very real threats with the undoubted finances behind them to make it a reality now that Turkey and Azerbaijan have signed their transit agreements.
The Azerbaijani government in Baku now has to decide which project to go with and the threat becomes a reality.
The saving grace, if there is one, is that neither the Russian/Germanic Nordstream or any 10 billion cubic meter pipeline from the Caspian Sea combined, will completely remove the need for gas transited across Ukraine. Yet.
However things change.
On the up side for Ukraine, is that the exploration of the Black Sea shelf and tapping its own hydrocarbon reserves looks ever more likely with China, RD Shell, BP and Petrobas all signing or in the process of signing on dotted lines with Ukraine. Ukraine could well end up being a net exporter in the decades ahead. What is not sent to China or used internally could very well head towards the EU if the existing GTS system is saved from falling into further disrepair.
Unfortunately for Ukraine, given its complete inefficiency and bureaucratic nature, there is more chance of the Caspian TAP, SEEP and others being in existence before Ukraine gets its act together with its partners.