The two-day international «EU-Russia Energy Dialogue» conference which took place May 29-30, the eighth such conference so far, was once again unable to overcome the stalemate between Moscow and Brussels in the field of energy. The leadership of the European Union still insists that Russia accede to the so-called «Third Energy Package», which would essentially require Russia to abandon participation in projects for the delivery and distribution of Russian gas in EU countries. In essence, this is a demand that Moscow agree to delegate part of its financial and economic powers in the energy field to Brussels, without having the possibility to influence the European Union's decision making… The European Union applies a similar mechanism with regard to individual states in the Eurozone on the pretext of implementing anti-crisis programs. However, Russia is not a member of the EU and cannot take such obligations upon itself in addition to the obligations to organize an uninterrupted supply of energy resources to EU countries which are already prescribed in existing agreements. 

The fact that the European Union's energy requirements are growing and will continue to do so is no secret to anyone. And even the financial crisis has not changed this. Reduced investments and a strict economic regime have hit plans «for the future» the hardest; these include plans regarding renewable energy sources and shale gas, production of which has not yet begun on the required scale in Europe. The main debates among experts are all focused on the growth rate of the EU's dependence on external energy sources. According to estimates, EU member countries currently import up to half their required energy resources, and the share of oil in these imports exceeds 70%. In the long term, the EU's dependence on external sources of energy could reach 92% for oil and 81% for gas by 2030. 

The question then arises as to where to get the needed resources. A few years ago in Brussels, everyone was certain they would come from the Nabucco gas pipeline. At first this project called for delivery of gas from fields in Azerbaijan and the Middle East via Turkey, with the potential to connect Central Asian suppliers to it as well. The length of the pipeline was to be around 3300 kilometers, and the potential volume of gas delivered was to be 25-30 billion cubic meters per year. 

It sounds impressive. However, even in the best case these supplies could meet no more than 5% of the EU's estimated gas needs for 2020. In other words, Nabucco is unable to solve the EU's energy security problem by replacing supplies from Russia, especially in light of the fact that after the deployment of the South Stream gas pipeline, the total volume of Russian supplies to Europe will be 110-118 billion cubic meters per year. This will make it possible to meet no less than half of the European Union's growing demand. In 2009 The New York Times observed that supplies from Nabucco could cover only 12% of the projected volume, while supplies from Russia even without South Stream cover one third of the EU's gas needs. [1]

But that's not all. Complications arose in the implementation of the Nabucco project from the start. As of today, the last part of the pipeline to actually be deployed is the 47-kilometer Arad-Szeged line, which unites the Hungarian and Romanian gas distribution systems.

And in early 2012 an official representative of the Turkish Ministry of Energy stated that Ankara will no longer give «full support» to the Nabucco project, as alternative projects are «much less expensive and simpler to implement». In his words, Ankara's priorities (and those of the key participant in Nabucco, Baku) will henceforth be the Transanatolian Pipeline (TAP, which uses Azerbaijani gas and Turkey's existing pipeline system), as well as gas supplies from Russia. This circumstance led the London newspaper The Financial Times to suggest an energy alliance between Russia, Azerbaijan and Turkey and draw the conclusion that «the prospects for Nabucco seem to worsen every day». [2]

In spring 2012 the prime minister of Hungary, Viktor Orban, made a similar statement, saying that the Hungarian company MOL had decided to abandon participation in the Nabucco project. At that same time a representative of MOL confirmed that there were many ambiguities in the project which were «difficult not to notice», particularly with regard to the financing of construction and searching for resources from which to fill the pipes with gas. [5]

As a result, it was necessary to make new changes in the already approved plans, and currently the consortium for the construction of the pipeline is considering the problem of laying 1300 km of pipes from the Turkish-Bulgarian border to Austria. The updated project has already been named Nabucco-West. And as the apotheosis of the growing lack of faith in the project among experts and investors, in March of this year the German energy concern RWE sold its share in the project to the Austrian group OMV.

Thus the original project for the Nabucco pipeline has suffered forcible changes over the past years which reduce its economic viability even further. There are also serious problems with filling the pipes. As Deloitte financial analyst Graham Sadler notes, «It's difficult launching and financing an infrastructure megaproject into a gas market which already has access to competitively priced supplies of gas». In light of this, he judged the economics of the Nabucco project to be «in the balance». [3]

The final nail in Nabucco's coffin could be driven in by Azerbaijan. The national Shah Deniz consortium is currently selecting a route for exporting Azerbaijani gas to Europe from among TAP and Nabucco-West. The decision is to be made by the end of June 2013. Nevertheless, the vice-president of marketing and investments of the State Oil Company of Azerbaijan Republic (SOCAR), Elshad Nasirov, seems to have already anticipated the abandoning of Nabucco-West, having called the Transanatolian Pipeline the only possibility for Europe to obtain alternative gas. 

However, for some reason the Eurocommission still cannot get over its anti-Russian energy phobias. The slogan of diversification can still be summarized in one idea for Brussels: how to prevent the growth of Russian supplies. The actions of the Eurocomission can easily fit in with some geopolitical projects, but they cause real harm to European consumers. 

It is not surprising that in EU countries there is a growing understanding of the desirability and even the necessity of collaborating with Russia in the field of energy. For the countries of Southern and Southeastern Europe, a key role is played by the South Stream project, against which the Eurocomission launched a massive campaign from the very beginning. The first document in the implementation of the South Stream project was the Russian-Italian memorandum of understanding signed in June 2007 by Gazprom and ENI. In November of that year Gazprom and ENI signed an agreement in Moscow on the creation of a joint company for preparing a feasibility study. A company with ownership of shares split 50/50 whose task was to develop and implement a project for building a gas pipeline with a capacity of 30 billion cubic meters of gas per year was registered in Switzerland in January 2008. At the same time a preliminary Russian-Bulgarian agreement was signed (ratified in July 2008) regarding Bulgaria's participation in the project and the creation of a joint enterprise responsible for building the Bulgarian section of the pipeline. As for the other key participant in South Stream, Serbia, preliminary agreements were signed with it even before the official announcement of the project, in December 2006.

In case of possible political complications, the Russian side has planned an alternative route for transporting gas to northern Italy via Croatia and Slovenia and then to the Austrian gas distribution station in Arnoldstadt. In November 2009, after Russian-Slovenian negotiations, an agreement was signed in Moscow providing for the construction of a branch from the main pipe of the pipeline which would go through Slovenia to northern Italy. And in March 2010 similar agreements were reached with the Croatian side. In addition, when coming to an agreement with Gazprom, MOL prepared a possible replacement in advance: if the Austrian side withdraws from the project altogether, the role of the gas distribution station in Baumgarten will be taken on by a similar site in the Hungarian town of Varosfoeld.

The countries of Central Europe speak in favor of energy partnership with Russia as well. In particular, the prime minister of the Czech Republic, Petr Nečas, emphasized during a meeting on May 27 of this year with his Russian colleague Dmitry Medvedev that he considers energy to be a «key sphere» of bilateral collaboration. This refers not only to the maximum use of the capacity of the Druzhba oil pipeline (the world's largest system of oil trunk pipelines which pass through the Czech Republic, Slovakia, Hungary, Poland and Germany), but also to the building of an underground gas reservoir. Construction is to begin in Dambořice (South Moravia) in 2014. Its capacity will be 448 million cubic meters. If one considers that the Czech Republic has been connected to the North Stream pipeline since January 2013, it is clear that it could become an energy bridge in EU-Russian relations.

Furthermore, real possibilities of creating a large regional network in Central Europe for receiving and distributing Russian gas can be seen. These issues, in particular, will be discussed on June 16 in Warsaw at a meeting of the Visegrád Group (Poland, Hungary, the Czech Republic and Slovakia). The signing of a «roadmap» for creating a common gas market in these states will be discussed. During negotiations which took place recently in Warsaw between the presidents of Poland and the Czech Republic, Bronisław Komorowski and Miloš Zeman, the Polish leader emphasized the importance of implementing multilateral projects «for unifying both gas and electric corridors at the border». 

Meanwhile, the official statistics agency of the EU, Eurostat, has published new data on gas prices. According to these statistics, prices in EU countries rose by 10.3% in the second half of 2012 as compared with the second half of 2011. The largest growth was noted in Latvia (21%), Estonia (19%) and Bulgaria (18%). [4] In Bulgaria this was the main reason for the massive anti-government demonstrations which led to the resignation of Boyko Borisov's cabinet.

The task of meeting the growing energy needs of the European Union is gaining more and more significance. And without Russia this problem cannot be solved. However, to this end it is necessary to remove the main aggravator in the relations between Moscow and Brussels in the energy field: the forcing of the Third Energy Package on Russia. Russia's permanent representative at the European Communities Vladimir Chizhov pointed this out once again in a speech on May 29 in the European Parliament at the second meeting of the interparliamentary workgroup on energy. He urged the EU to exempt cross-border energy projects from the impact of this package. «Really, what will guarantee investments in large energy projects in Europe today is not the effects of the Third Energy Package, but rather the granting of exemptions from it to certain projects,» the Russian diplomat pointed out. As an example he mentioned the Eurocomission's decision to exempt the Transadriatic Gas Pipeline (Azerbaijan – Greece – Albania – Italy) from its effects for 25 years. 

Most likely, the European Union would make concessions to Russia in such an important area for both sides as energy supplies if it weren't for the position of the U.S. For Washington, isolating Russia as much as possible from energy markets is a question of strategy, as «dependence on energy producers is incompatible with a unipolar world and is a real threat to the status of the U.S. as the only superpower». It is no accident that such close attention is given to the so-called «Greater Middle East», where 62% of proven world oil resources and over 40% of gas are found, in the concept of the Pax Americana. [14] As Massachusetts Institute of Technology professor Noam Chomsky writes, «the main goals of global domination which were formulated in the post-war era remain relevant to this day». Among these goals Chomsky names «keeping control over the main world energy sources». It is worth mentioning that as far back as 1945 the U.S. State Department declared energy resources to be «one of the most attractive trophies in world history». [5]

Thus, in knowingly making unacceptable demands of its Russian partners, the EU is playing by American rules, not by its own European rules.

The Eastern Europe unanimously placed its bet on the South Stream. Plain fact is that the new Europeans chose to protect their national interests in spite of all temptations and threats from Brussels and Washington. Now it is not an overstatement to say: the South Stream business blueprint is complete and it is entering construction stage. By the end of 2018 the pipeline is planned to reach a transport capacity of 63 billion cubic meters per year – enough gigajoules to supply energy needs of 38 million households. What has encouraged the pro-South Stream choice of Eastern European political elites presuming their frosty relations with Russia? Why did they not resort to broadly advertised alternatives?

The not-so-obvious answers to these geopolitical riddles are conditioned by cold math and economic forecasting. Independent economic feasibility studies show that expensive and bulky South Stream is the only realistic way to guarantee safe and reliable natural gas supplies to Europe. It will play a pivotal role in the regional energy security up to 2030-es. Other sources like nuclear power or renewable sources are nothing more than perspective alternatives. Sovereign national leaders in Budapest and Belgrade understand very well: overoptimistic advertisements of wind energy on Euronews TV channel will not power heating networks in their countries. And the notorious Cyprus affair ruined the last remnants of their belief in «European solidarity».

Let’s have a look at energy statistics. The primary production of renewable energy within the EU in 2010 was 166.6 million tonnes of oil equivalent – a 20.1 % share of total primary energy production from all sources. EU renewable energy targets 2020 are very ambitious in times of financial turmoil. But even if the European Commission completes this costly energy program, the total share of alternatives will reach only 30%. It means that today the end users in the Eastern Europe are in urgent need of stable fossil fuel source. Brussels understands it very well, but puts a brave face on a sorry business. Now the EU officials are presenting paper-and-pencil pipelines trying to lure Azerbaijanian businessmen into their controversial Nabucco West project. Although even the main US lobbyist for the Nabucco West, former US Ambassador to Baku Matthew Bryza admits: «the chances [of the South Stream] are excellent. When the leader of Russia puts his mind to a pipeline it happens».

It is often claimed, that nuclear energy can be a solution. But Germany, the industrial powerhouse of Europe, has recently banned the use of nuclear power. Influential Green party in Berlin took advantage of overwhelming popular support after the Fukushima incident. Therefore, in the mid-term Germany’s energy demand will be satisfied by supplies via the completed Nord Stream and the emerging South Stream. A country-by-country survey of the South Stream milestones may shed some light on the key motives behind the strategic decision of the Eastern European countries to opt for this pipeline.

Bulgaria will develop both the South Stream and the atomic engineering. Sofiais planning to construct a new 1,000-megawatt (MW) reactor at the existing Kozloduy NPP with the help of the Russian company «Atomstroyexport». In 2012 Bulgarian officials broke the deadlock in negotiations with Gazprom and signed a protocol of the final investment decision on the South Stream. The construction of gas receiving facilities will start in Bulgaria in 2013. «A 538-kilometer section of the gas pipeline will provide Bulgarian consumers with continuous and uninterrupted natural gas supplies over a long term», said Alexey Miller, the CEO of Gazprom. As early as 2009, Sasho Dontchev, Executive Director of Bulgaria’s Overgas explained why his country stands with Russia: «We mostly have to discuss real opportunities. Nabucco would be very fine as it assures an alternative supplier and an alternative route, but the project hasn’t been sustained by the sufficient amount of gas. Therefore, the South Stream seems more preferable to me now.»

Serbia was the first South Stream member country to adopt the pipeline’s final investment decision. South Stream's first facility – the Banatski Dvor underground gas storage – shaved gas consumption peaks in Serbia during the 2011/2012 cold winter season. Early 2013 Sebian government promised to grant the South Stream national significance status. Managing Director of state-owned Srbijagas Dusan Bajatovic confirmed that the construction of South Stream in Serbia will begin by the end of 2013. Now project implementation is going according to plan despite all sorts of speculation in a number of Serbian media outlets. In March, 2013 Mr. Bajatovic explained that some international «business groups» attempted to lobby against the South Stream, but failed. If we take into account US intrigues in Bulgaria against the Kozloduy NPP, this assumption doesn’t seem improbable.

Croatia gave a final nod to the South Stream in January 2013. Environmental impact assessment procedures required by national law are currently at their final stage. Gazprom and Croatia’s Plinacro inked an Action Plan to implement the South Stream project between 2013 and 2016. The document envisages that a joint project company for building a gas branch to Croatia will be set up at the beginning of the second half of 2013.

Hungary performed a feasibility study for the Hungarian section of the South Stream in 2011. It resulted in the approval of the final investment decision on building of a 229 kilometers long pipeline section. Moreover, Budapest granted the South Stream the status of a national significance project. Csaba Baji, CEO of the MVM Group, the largest Hungarian power company, favors the deal: «With the Hungarian Government's support, we are committed to increasing energy security and diversifying the routes of natural gas supply to the European Union. The South Stream project is an important part of our long-term strategy».

Slovenia teamed up with Gazprom for the South Stream on November 13, 2012. Slovenian stakeholders including energy company Plinovodi signed the final investment decision on construction of the gas pipeline section in this country. Priority is given to environmentally friendly construction schemes and economic efficiency. The Russian investors entrusted the majority of technical and operational work to the state-owned Slovenian natural gas company Geoplin for the purpose of carrying out the joint enterprise.

If we consider strategic agreements, economic feasibility studies and environmental assessments completed by the sovereign Eastern European energy companies, we can predict, that the South Stream project will be completed by 2018-2020, but with estimated cost overrun (approximately $39 billion – see fact sheet below). The rival consortium Nabucco West targets the same market as the South Stream. Although today these projects do not complete on equal terms. The South Stream boasts fixed construction schedule and a plethora of bilateral agreements with transit states, while the Nabucco West still undergoes negotiation process. Given the geopolitical importance of energy supplies to Europe, it is very probable that in the long term Nabucco West will eventually be completed, although the South Stream being a large-scale project may by that time capture lion’s share of the market.

________________________

The South Stream Fact Sheet

• Gas pipeline will be 1455 km long in Southern and Central Europe;
• 8500 people will be employed in its construction, with 770 at the operational level;
• Eight compression stations are to be set up in the main transit countries;
• The South Stream planned transport capacity may reach 63 billion cubic meters;
• The overall cost of the project is approximately $39 billion.

European experts in public relations haven’t given Trans-Caspian pipeline (TCP) project a pretentious brand name yet. And they had very good reasons to be cautious. Negotiations between Turkmenistan, Azerbaijan, and the EU on the construction of the Trans-Caspian gas pipeline have been ongoing since the late 90s. Despite extensive talks for more than 10 years, all summits and meetings were inconclusive. The European Union has made no financial commitment to the TCP project. What are the bottlenecks of the controversial pipeline? Why many politicians believe it still remains a distant prospect, not to say just another over-advertized pipe dream of Brussels?

First, legal status of the Caspian is currently unregulated. Therefore, territorial arguments among the littoral states are unavoidable. Even worse, two main stakeholders of the Trans-Caspian project, Azerbaijan and Turkmenistan, have unresolved disputes concerning gas fields: Baku and Ashgabat disagree over the ownership of the Kapaz/Serdar hydrocarbon deposit, which is needed to fill the pipe. Such issues are not easy to settle in reality, even if the European “big brother” is turning the heat on and demanding to get all the paperwork done in 2013.

Second, even if Azerbaijan and Turkmenistan succumb to the moment and sign a bilateral agreement to please Barroso and Oettinger, any independent analysis must also acknowledge the practical realities of geopolitics. Russia, Kazakhstan and Iran will never sanction the first link of the pipeline to be run under a body of water, because it is unacceptable from an environmental standpoint. The Caspian is a closed system, with no outlets to the world's oceans. Considering the high seismic activity in the region, the level of potential accident implications of underwater pipeline can be also dramatic. That’s why Kazakh President Nursultan Nazarbayev called the prospects for the TCP «very foggy».

Finally, the questions of Turkmenistan’s proven gas reserves and its future market remain open. By the expert assessment of “McKinsey & Company” the biggest Turkmenian “Galkynysh” field falls into the category of “very complicated fields”. Gas production cost will be one of the highest in the world. Turkmenistan is very well aware of all these issues and thus is committed to the principle of realization of the energy resources at its border. It means that the problems of fundraising, security and development for the project automatically become the problems of its partners – Azerbaijan and the European Commission. The market prospects of Turkmenian gas are dubious. Given the ongoing crisis in the eurozone, it will not be easy to the EU to guarantee that it will buy all the gas. Falling energy consumption in Europe due to crisis may also become a factor of economic inconsistency of the TCP.

Moreover, the problem of Turkmen gas brings China into the game, one of its most important consumers. Is there enough gas for both East and West? According to a Chinese diplomat, as quoted by RIA Novosti, «Beijing does not want Turkmenistan to build a pipeline to the European Union, get a different gas price on the European market and then increase it for China. Beijing will do its best to make sure the Trans-Caspian pipeline project is not developed.» And it should be mentioned that China is one of the major investors in Turkmenistan’s economy.

If one considers all these obstacles to the project, it will be easy to understand that as of today the TCP remains nothing more than a topic for endless negotiations and loud statements for all parties involved. The EU is desperately trying to get political leverage against Russia’s ambitious South Stream, Azerbaijan is always ready to negotiate and Turkmenistan wants to secure investments. No more than a game of politics, as always.

As the autumn set in a number of high-level government teams visited Turkmenistan. On September 3 president of Turkmenistan Gurbanguly Berdimuhammedow met Taner Yıldız, Turkish Minister of Energy and Natural Resources. Energy cooperation topped the agenda. President Berdimuhammedow noted his country was rich in oil and gas and paid interest in building new pipelines going to Europe. Taner Yıldız said Turkey was ready to render any support to bring such projects into life. The very same day the President of Turkmenistan held talks with a delegation of the European Union led by the acting director of the General Department of Energy Jean-Arnold Vinois. By and large they discussed the same agenda: creating reliable and solid legal ground for energy cooperation and diversification of gas export routes going from Turkmenistan. Turkey and the EU try to revive the Nabucco project in a different form. The Trans-Anatolian gas pipeline has become a new project to take the Nabucco’s place. The agreement to build it was signed by Turkey and Azerbaijan in Istanbul on June 26. The estimated cost is $7 billion. The pipeline line is to go from Azerbaijan to the Turkish borders with Bulgaria and Greece. The planned capacity would be 16 billion cubic metres (570 billion cubic feet) of natural gas per year: 6 to Turkey and 10 to Europe. If constructed, it would transport gas from the Azeri Shah Deniz-2 gas field. It’s obviously not enough to compete with Gazprom, so, reportedly, the capacity may go up to 60 billion cubic metres in future. It exactly matches the planned capacity of Russia’s South Stream that, unlike Nabucco, faces no difficulties related to funds or resource base. Taner Yıldız said: "With the TANAP project we have created a structure that will allow gas to transit across Azerbaijan and facilitate trade. …” He said gas deliveries from Turkmenistan was the goal.

At present the project is designed for deliveries from the Azeri Shah Deniz Stage 2 gas-condensate field only. The Nabucco’s capacity was to be around 30 cubic metres a year. Azerbaijan had resources enough to provide for the half of it. The other half was to come from Turkmenistan considered to be the second resource base for Nabucco. Russia has bought four times less of Turkmen gas since 2010, so Ashgabat would greet the emergence of one more export route. A pipeline at the bottom of Caspian Sea is a requirement. The construction is hindered by difficulties involved in establishing the legal status of the Caspian Sea. Being a lake it’s not covered by international sea law. The EU recent strategy has been focused on building a pipeline between Turkmenistan and Azerbaijan ignoring the objections raised by other Caspian states, first of all Russia and Iran. Neither Brussels nor Ashgabat dared to take the first step.

Unlike Nabucco TANAP is more flexible. In case there would be no access to Turkmenian gas, the investors would be satisfied with the gas coming from Azerbaijan and the capacity would stay at 16 cubic metres a year. The Azeri gas supplies could somewhat be increased as time goes by. According to local BP officer estimates, the potential supplies to Europe could go up to 24 cubic metres by 2020. In this case the program minimum would be implemented: the Azeri gas would go to the EU through Turkey (not Russia) and the foreign policy of South Caucasian states would become more pro-Western. If the Trans-Caspian gas pipeline is built, the capacity could be increased. The projected capacity of 60 cubic metres makes one stop and think. Initially Turkmenistan guaranteed to fill the half of Nabucco’s capacity, that is around 15 cubic metres a year. That’s what is unclear in principle: either the export capacities of Ashgabat and Baku are to suddenly substantially increase exceeding what has been declared so far or the TANAP designers count on other gas sources. Isn’t it Iran that is considered to become a resource base as a result of an operation aimed at “changing the regime”?

Today the Iran’s stance is a major hindrance in the way of Trans-Caspian pipeline project. Teheran insists the Caspian should be divided into five equal parts while other states stand for the division into national sectors along the shore lines. Russia, Kazakhstan and Azerbaijan divided the sea bottom among themselves according to this principle. The sea bottom is not divided in the southern part of the Caspian because of Iran’s disagreement with the option. That’s what makes the Trans – Caspian pipeline construction problematic: which territory is it going to cross when there are no commonly recognized sea borders in this part of the sea? Getting Iran out of play makes the solution much simpler.

There is one more hitch in the way of Trans-Caspian pipeline – the disagreement between Baku and Ashgabat over the sea border. The Kyapaz (Serdar in Turkmenian) deposit is at the root of dispute. The estimated oil and gas condensate is 150 million barrels. The both states stick to the principle of border line in the middle of the Sea. However, Azerbaijan proposes the equal distance from extreme points of coastal line while Turkmenistan stand for the principle of delimitation based on the middle of geographic latitudes. The latter makes the Kyapaz a part of Turkmenian territory, the Azeri deposit becomes situated on the border line; its development has already been started by Baku. The proposal to develop the Kyapaz together put forward by Azerbaijan was not accepted by Ashgabat. In 2008 the presidents of both countries agreed to make no moves to develop the disputable field. But in June 2012 a diplomatic scandal flared between the two – Azerbaijan launched a protest against starting seismic work by Turkmenian research vessel. Turkey is trying to settle the issue doing its best to narrow the gap between the stances. It’s not known if the efforts applied by Ankara have produced any result.

The stakes are high in the big game around the Caspian hydrocarbons. The main goal of the West is to separate the countries of South Caucasus and Central Asia from Russia, to avoid the integration of post-Soviet states within the framework of common economic space, to make the energy routes bypass the territory of the Russian Federation. Supposedly, as a result, the geopolitical former Soviet Union space would acquire a new shape described in the concepts of New Silk Road and Greater Middle East…
 

The South Stream project, along with the twin North Stream, are key to Russia’s strategy of maintaining completely secure energy supply to Europe, the point being to insulate the Russian gas export from the risks generated by policy swings in transit countries. Over the past years, neglect for transit obligations or unauthorized withdrawal of gas by Ukraine and Belarus occasionally left Europe’s energy reserves running low, a problem which will never arise when both pipelines are phased in. North Stream and South Stream are intended to combine into an integrated energy supply network which will make Europe immune to the consequences of Kyiv’s and Mensk’s unpredictability. 

Georgraphically, South Stream is the bigger of the two infrastructures, but still took under five years to design despite the recurrent geopolitical complications. The project started when, in June, 2007, Gazprom CEO A. Medvedev and the chief of Italy’s ENI Paolo Scaroni penned the corresponding memorandum in Rome [3]. The agreement by which Bulgaria joined in was ratified in July, 2008. A deal with Serbia, another important South Stream partner, was reached back in 2006 when Gazprom and Serbia’s gas monopoly Srbijagas signed an agreement to conduct a feasibility study for the construction of the section of the pipeline stretching across the country to the Bulgarian border. As the next step, in January, 2008 Moscow and Belgrade sealed a massive package of inter-government accords on the cooperation in the energy sphere, the construction of a leg of South Stream in Serbia being a part of the program. The pipeline with a starting point in Bulgaria was to traverse Serbia and Hungary and to connect to Austria’s Baumgarten gas storage facility. In fact, Russia has a Plan B to be put into practice if the original configuration fails to materialize due to political turbulence in transit countries: gas from Russia can be fed to the Arnolstein depot in Austria via Croatia and Slovenia. Hungary’s MOL offered Gazprom an alternative route to be put to work in case Austria drops out of the project – the gas distribution hub sited in Varosfeld, Hungary, can serve as the pipeline destination [4].

Subsequent developments showed that keeping alternative plans on the table made plenty of sense. From the outset, South Stream became the target of intense geopolitical games directed from Brussels whose reading of energy security is dominated by concerns over alleged over-reliance on Russia. To lessen the dependence on Moscow, in 2003 the European Commission dished out a grant to probe into the feasibility of the Nabucco pipeline. A whole summit dedicated to the project convened in Budapest in 2009 to pass a declaration praising the viability and innovative character of Nabucco which was supposed to provide a direct link between the Caspian and Middle Eastern energy suppliers on the one hand and the buyers in the EU, Turkey, and Georgia on the other [5].

Within a relatively short time the above claims proved to be at odds with the empirical reality which showed that Nabucco desperately lacked viability. As it was spelled out in a paper featured by The New York Times, the only potential resource base for the project exists in Azerbaijan and accounts for under 12% of the pipeline’s designated throughput. In contrast, even absent South Stream, Russia’s natural gas supplies already cover over a third of Europe’s energy needs [6]. Making the outlook for Nabucco even dimmer, Moscow and Baku are at the moment discussing how to up the sales of Azerbaijan’s gas to Russia. In an attempt to save its sinking energy plan, Brussels went as far as to start eying the Iraqi and Iranian fields, though the related political risks are clearly prohibitive.

The EU maximally uses political leverage to retake the initiative from Russia. With a certain amount of arm-twisting involved, Brussels made Austria opt out of South Stream, citing as a motivation the grim state of energy relations between the EU and Moscow and the alleged risks of admitting Gazprom to the strategic Baumgarten depot. Russia promptly rolled out a fresh plan, with the gas hub to pop up in Treviso, Italy. An appropriate transit deal was immediately signed by Gazprom CEO A. Miller and Slovenian premier Janez Jansa. Similarly, when Hungary created a problem by indefinitely shelving the feasibility study for the pipeline section to be hosted by the country, Croatia expressed interest in blending into the project. Information sources within Gazprom indicate that negotiations with Zagreb over the route-around are making progress and Slovenia’s interest in the transit is beyond question [7]. That does not necessarily mean Hungary's being out – according to A. Miller, at least as of today no deadlines in dealing with the country are under threat and the difficulties are overstated [8]. As for Bulgaria, in 2011 its government chaired by Boyko Borisov expressed certain reservations concerning the project, but this June Bulgarian deputy minister for economy, energy, and tourism Evgenia Haritonov reiterated the country’s initial commitments [9]. The change of tide could be due to the warnings coming from Gazprom that Bulgaria’s role in the project would be taken by Romania, as the two countries are known to be locked in a perpetual regional rivalry. Overall, the South Stream route in its current version heads from the Varna seaport in Bulgaria to Italy across Serbia and either Hungary or Croatia.

In the meantime, EU experts broke the news that the cost estimate for Nabucco which started climbing from the reasonable Euro 8b eventually passed the Euro 14b mark. Based on the reports, the media began to suspect that Brussels is about to say goodbye to the project but so far feels uncomfortable to tell the whole truth. European Commission spokesperson Marlene Holzner announced that the project consortium – a concert of BP, Azerbaijan’s Socar, and Norway’s Statoil plus Austria’s OMV, Hungary’s FGSZ, Bulgaria’s Bulgargaz, Romanian Transgaz, Tutkey’s Botas, and Germany’s RWE – would unveil the verdict by the end of June. It is worth noting that Hungary’s MOL which owns the FGSZ transit company has already sent a message that it would gladly dump the Hungarian share in the project, considering that the availability of the necessary supplies and investments chronically remains hypothetic.

It appears fairly certain that Nabucco in its present-day shape stands no chance. Even BP, a heavyweight in the partnership, sounds skeptical about its future: BP officer Jean Cohen is known to have said that the consortium cultivating the Shah Deniz gas field in Azerbaijan no longer believes in Nabucco as the pertinent transit avenue. Taking the statement into account, one has to draw a radical conclusion that the amount of resources to sustain the Nabucco project exactly equals zero.

No doubt, the energy battle is not over as the U.S. clearly intends to weigh in. As long ago as in 1945, the U.S. Department of State described the energy resources as top trophies in world history, and maintaining a grip on them worldwide has continued to rank high on Washington’s agenda ever since. For the first time in the post-Cold War era, the US Department of State's Congressional Budget Justification, Fiscal Year 2012 called for limiting Russia’s growing influence on the energy market and, in line with the objective, for preventing an energy alliance between Russia and Europe. The document listed among the U.S. priorities the construction of pipelines bypassing Russia and connecting the Caspian region and Central Asia to West Europe while financially and otherwise impeding the implementation of Moscow’s projects aimed at energy transit across the Balkans [12]. It should be borne in mind that Washington’s record of pursuing the U.S. energy interests on a global scale includes the military campaigns in Iraq and Libya.

As a parallel process, the disturbed architects of the New World Order in Brussels and Washington will likely react to the current tendencies in the competition between South Stream and Nabucco by increasingly reaching out to Azerbaijan. Z. Brzezinski stressed the importance of the country as a holder of impressive energy riches and a territory strategic in terms of the powerful and energy-hungry economies’ access to the resources of Central Asia [13]. The West’s heightened activity vis-à-vis Azerbaijan would bear significant impact on the Karabakh settlement, echo with shifts in the EU interactions with Turkey, and have geopolitical repercussions across the region strategically important to Russia.

References 

[1] RIAN 04/06/12 11:05 04.06.2012 11:06

[2] http://www.kremlin.ru/transcripts/15538

[3] http://www.energypublisher.com/article.asp?id=10031

[4] http://www.hatc.hu/enter.php?aid=45691

[5] http://www.kormanyszovivo.hu/media/retreive_file/14828?lang=hu

[6] The New York Times, 11.06.2008.

[7] Moskovskie Novosti, 04.06.2012

[8] Interfax 1211 050612 MSK 05.06.2012 12:11

[9] Itar-Tass 051352 ИЮН 12 05.06.2012 13:57

[10] RIAN 31/05/12 20:14 31.05.2012 20:45

[11] N. Chomsky,Hegemony or Survival 

[12] http://www.state.gov/documents/organization/156215.pdf

[13] Z. Brzezinski, The Grand Chessboard 

An impending revision of the Nabucco project which, in its initial shape, included the construction of a 3,900-km pipeline stretching from the Caspian Sea basin to the Austrian border, was announced early in 2012. In January, Turkey which was to host the longest section of the pipeline made it clear that it would no longer undividedly uphold Nabucco and would, instead, ascribe top priority to the Trans Anadolu (TANAP) pipeline construction. The latter project relies heavily on Turkey's existing transit infrastructures, with new routes to reach out only to the border between Turkey and Bulgaria. For Ankara, the relatively modest TANAP price tag appears to be the biggest advantage of the project over Nabucco.

The Financial Times wrote in mid-March that the slimmer Nabucco project, under the title of Nabucco West, had been approved by the majority of the companies behind the energy initiative. The list of the signatories owning equal 16.67% stakes in the project comprises Austria's OMV Gas & Power GmbH, Hungary's MOL, Bulgaria's Bulgargaz, Romania's Transgaz, Turkey's Botas, and Germany's RWE Supply & Trading GmbH. Notably, BP, the British energy giant which is not a Nabucco partner but is keenly interested in opening an avenue to supply natural gas from Azerbaijan's Shah Deniz gas field, was this time invited to the negotiating table.

The fundamental reason behind the downscaling of Nabucco is that, due to the lack of available gas reserves, its target throughput had to be reduced from 31 to 16 bcm annually. It transpired that Azerbaijan would contribute only half of the amount pledged, a problem which caused the project partners to switch to Iran and Turkmenistan. Iran, however, is permanently at the brink of war, and pumping gas out of Turkmenistan would take the construction of a pipeline underneath the Caspian Sea. It factors into the situation that the Caspian Sea is landlocked and, therefore, not subject to standard maritime regulations, while the Caspian countries are locked in a bitter dispute over the sea's status. As a result, the legal outlook for this part of the Nabucco project will stay dim for the foreseeable future. 

Turkmenistan does continue to negotiate with the EU over Nabucco, seizing every opportunity to demonstrate confidence that the project is viable. The Nabucco partners have been studying the legal, technical, and political prospects for the trans-Caspian segment of the Nabucco pipeline for several years, and it did not evade watchers that recently Brussels' activity in the area got a boost. On September 12, 2011 the EU ministerial council endorsed of the European Commission's mandate to represent the entire Nabucco consortium vis-a-vis Turkmenistan and Azerbaijan. Prior to the step, EU countries used to deal with the potential natural gas suppliers on a bilateral basis. As noted by Deutsche Welle, the above was the first case in history when the EU volunteered a formal treaty to back an infrastructural project. There was hope in Brussels that deals with Turkmenistan and Azerbaijan would be penned by the end of 2011 and that energy supplies from the Central Asian republics would start to flow in by 2017.

Germany's diplomacy chief Guido Westerwelle visited Turkmenistan in November, 2011 to discuss the situation in Afghanistan and the options for Nabucco with Turkmen president Berdimuhamedow. He stated shortly thereafter that the Nabucco talks were making progress and that Turkmenistan and Azerbaijan would soon join the project. A trilateral work group of representatives of the EU, Azerbaijan, and Turkmenistan convened last march in Brussels to draft a framework agreement concerning the trans-Caspian pipeline. According to Turkmenistan's official media outlet, the natural gas reserves owned by the republic were regarded as a promising source for the energy export to European countries.

The Turkmenistan Oil and Gas Roadshow 2012 conference on the southern energy corridor, at which the republic enjoyed being represented as a key global energy supplier with the world's fourth biggest proven reserves, was held in Berlin on March 14-15. Turkmenistan claims that the recently discovered Galkynysh gas field holds around 26 trillion cubic meters of natural gas, which is three times the amount contained in Russia's renown Urengoy. Turkmenistan's minister of oil and gas industry and mineral resources Bairamgeldy Nedirov says the Galkynysh output should climb to 230 bcm annually by 2030, with 180 bcm earmarked for export. At the moment, the lion's share of the Turkmen gas export is absorbed by Russia, China, and Iran, but plans exist to build pipelines from Turkmenistan to supply gas to Europe and to India (via Afghanistan and Pakistan). According to Turkmen sources, the former route is currently at the phase of “absolutely practical” discussion and the latter – of last-minute preparations for construction.

One occasionally gets an impression that the cut of the Nabucco target capacity by a factor of two and the plan to construct the trans-Caspian pipeline belong to completely uncorrelated realities. At the conference, the German and the Turkmen delegations similarly stressed that both sides stand to benefit enormously from the opening of the energy transit corridor. Jean-Arnold Vinois, head of the unit responsible for Energy Policy, Security of Supply and Networks of the EU Directorate General for Energy, quoted European Commissioner for Energy Günther Hermann Oettinger as saying that "Turkmenistan can play an important role in the diversification of EU energy supply routes" and advised the republic "to hurry up with the decision, since other players in the energy market – Iraq, Russia, and possibly Iran – will not tarry”. RWE supplies director Wolfgang Peters also expressed support for the trans-Caspian pipeline project, adding that it would both help Europe shake off Gazprom's energy grip and put to work the Czech transit infrastructures which, at the moment, operate below target. 

Importantly, Peters suggests that Turkmenistan, Azerbaijan, and the EU invigorate the project by signing an intergovernmental agreement defining the Turkmen supply quota. He maintained in an interview to Deutsche Welle that the accord would serve internationally as a legal foundation for unobstructed transit of fuel to Europe. Considering that the proposal agreement ascribes to the EU the main buyer's "patronizing" role, the wrestling between Baku and Ashgabat over the amounts to be dished out seems to be an unfinished story. Input-related disputes are known to have caused Turkmenistan to opt out of the trans-Caspian pipeline project, and Brussels' present-day assurances that the positions of Baku and Ashgabat are harmonized may prove to be a serious overstatement. 

The EU push for the trans-Caspian pipeline construction regardless of the fact that the Nabucco project as a whole saw its capacity halved signals a deep EU commitment to the new energy corridor plan. Chances are that the downscaling of Nabucco reflects a fleetingly adopted tactic, and the project's target throughput will be reset to a far more impressive mark if the plan to construct the trans-Caspian pipeline materializes, with Russia and Iran eventually being sidelined in the energy game.

The signing of the South Stream deal was the second of Russia's recent energy policy gains since the September 7 launch of Nord Stream. The list of stakeholders Moscow managed to convince to join  South Stream is impressive enough to guarantee support for the project in top-influential European countries, the shares of Gazprom, Italy's Eni, French EDF, and Germany's BASF/Wintershall in South Stream being 50%, 20%, 15%, and 15% respectively. It is clear that as a side goal the penning of the agreement at the peak of Russia's new round of arm-wrestling with Ukraine over gas prices was meant to show that serious options of gas transit diversification are open to Russia. Anyhow, Russia and the EU remain locked in a protracted conflict powered by the competition of the Caspian and Black Sea region's two pipeline projects – South Stream and Nabucco.

Over the past year the EU kept urging Moscow not to put obstacles in the way of Nabucco, while Brussels also admitted that Europe  needs both and even dropped hints that, ideally, Russia should scrap the South Stream plan and partner the Nabucco consortium. EU representatives made it clear at the September, 2010 Russia-EU energy dialog conference which convened in Brussels that Europe placed its bet on Nabucco and would not allow the South Stream project to appear on its priorities list or back it in any form. With Russia currently supplying 30% of Europe's demand for natural gas and 27% – for crude, Brussels feels that its energy dependence on Moscow is excessive. European Commissioner for Energy Günther H. Oettinger stressed that the EU would rather be importing gas directly from the Caspian region, though Brussels would not oppose parallel construction of Nabucco and South Stream.

In September, 2010 the Russian-European gas dispute culminated in angry exchanges as Germany's former foreign minister and Nabucco's current political consultant Joschka Fischer attempted to disprove Putin's Sochi statement that natural gas resources to provide a workload for Nabucco were unavailable and expressed the view that Moscow's game was about leverage over Europe rather than about normal gas export. What followed was a real information war between Russia and the EU, with the former churning out arguments against the Nabucco project and the latter calling Russia to refrain from impeding its implementation. The key issue in the process was whether the EU would be able to sideline Russia and gain independent access to the Caspian reserves without which there is going to be no gas for Nabucco. Oettinger said on March 28 that launching Nabucco takes gas suppliers' consent which was needed immediately but missing. He also warned Russia against trying to block the project or pushing for South Stream's becoming an alternative to it. In contrast, support for Russia's position was voiced by former German chancellor Gerhard Schröder who in June, 2011 projected that the shutdown of Europe's nuclear power facilities would leave it in need of extra 170 bcm of natural gas and prised Russia as an absolutely reliable gas supplier. Europe's own resources are being depleted while North Africa and the Middle East are too unstable to guarantee uninterrupted gas supply. Schröder further said that in Turkmenistan there are curious individuals who have a tendency to sell 300% of certain gas reserves and that Azerbaijan happens to be the brightest democracy one can imagine. He did say Nabucco deserved support but opined that opposition to South Stream made no sense as Russia's extra pipeline would contribute to the security of Europe's gas supply.

Shortly before the South Stream agreement was signed, Oettinger bluntly told that it was undesirable. South Stream would be all right with Europe only as an additional avenue for Russian gas supplies to Europe, but – since for Europe access to the world's biggest gas reserves on which Central Asia sits is the key issue – the gas from the Caspian region being pumped via South Stream would be a problem for Brussels. Azerbaijan's gas deposits alone would not be enough to match the planned Nabucco throughput, meaning that prospects for the project depend on the availability of natural gas from Turkmenistan. Consequently, the future of Nabucco depends on whether the EU has any luck constructing a pipeline underneath the Caspian Sea, which takes overriding the positions of other Caspian countries. No compromise on the hitherto undefined status of the Caspian Sea has been reached up to date, and the legal aspect of the plan for the Trans-Caspian pipeline construction evokes serious doubts.

Oettinger's spokesperson Marlene Holtzner said in a recent interview to Deutsche Welle that the theme of the Caspian Sea status will not be touched upon in the process of signing the pipeline construction agreement, and that the existing discord over the issue should not affect the whole plan.  The EU maintains that the pipeline is to traverse the territories of Azerbaijan and Turkmenistan, and that other countries may, as in the case of Nord Stream, ask to have their ecological concerns addressed but have no authority to put the project on hold. In the coming few weeks, the EU expects to open talks with Azerbaijan and Turkmenistan in order to finalize the plans for the pipeline length and the amounts of gas to be contributed by Azerbaijan and Turkmenistan, along with the environment and investment protection parts of the deal. The signing of the South Stream agreement seems to have no impact on the developments around Nabucco.

The EU is open about its intention to ignore Russia's and Iran's positions as it goes ahead with the Trans-Caspian pipeline construction and to treat the Caspian Sea as any other, implying that the Caspian seabed is a marine zone exclusively belonging to Azerbaijan and Turkmenistan. The fact that the Caspian Sea is actually landlocked and therefore the international maritime law should not apply to it is not taken into account in Brussels. The EU designs, it should be noted, additionally carry a hidden military agenda as the US has long declared the Caspian region a zone of its interests.For Washington, Nabucco is a form of curbing China's appetite for the natural resources of the region. The project will as well help the US strengthen the grip on Central Asian republics' political elites which Washington has been courting for quite some time. In the nearest future, we can expect to see the US and the EU act in concert not only to advance Nabucco but, as a parallel process, to drag the Caspian republics out of Russia's orbit…