Energy: Nabucco Chief Eyes Iranian, Russian Gas, Despite U.S. Objections

Nabucco Managing Director Reinhard Mitschek

When finished, the Nabucco gas pipeline will run from eastern Turkey to the heart of Europe, completely bypassing Russia. But while its route is established, its suppliers have yet to be fully determined. And therein lies the controversy.

Earlier this month, Matthew Bryza, the U.S. deputy assistant secretary of state for European and Eurasian affairs, told Reuters that Washington would strongly oppose the Nabucco pipeline being used to pump Iranian gas to Europe. His comments on June 5 came after the chairman of Botas AS, Turkey’s state-pipeline company and a Nabucco shareholder, said the project would need to turn to countries such as Iran in the future in order to secure enough gas to fill its capacity.

Bryza put his foot down. “Nabucco, to move Iranian gas, would not be something we could support,” the U.S. diplomat said in Moscow.

But in an exclusive interview with RFE/RL, Reinhard Mitschek, the managing director of Nabucco Gas Pipeline International GmbH, says that despite U.S. opposition, the Vienna-based pipeline group is likely to pump gas from whatever sources can supply it.

"One of the [unique selling points] is the multisourcing approach," Mitschek says. "So we expect gas from Azerbaijan, from Turkmenistan, from Kazakhstan, from Iran, from Iraq, from Egypt, from Russia. And therefore we are not fully dependent on one of these sources because we expect a whole portfolio of gas supply sources. That's very attractive for the gas buyers in Europe."

Broad support in Europe

Scheduled to be completed in 2013, the Nabucco natural gas pipeline will run 3,300 kilometers from eastern Turkey through Bulgaria, Romania, and Hungary to Baumgarten, Austria. It will carry some 31 billion cubic meters of gas annually. Six major European companies are shareholders in Nabucco: Botas AS of Turkey, Bulgargaz Holding EAD, Hungary's MOL Plc, Austria's OMV OGB, Germany's RWE, and Transgaz SA of Romania.

The project has broad support in Europe, but Bryza suggested U.S. support, while strong, may not be unconditional.

The Nabucco project has long been hailed as a remedy to Europe’s growing dependency on Russian natural-gas exports. Yet in recent months it has become clear that both Russian and Iranian companies are likely to be involved in the Nabucco project, either as gas suppliers or, in the case of Russia’s Gazprom, as a 50-percent stakeholder in the Baumgarten-based gas hub that Nabucco is supposed to feed.

Despite all the talk about Nabucco’s role in Europe’s “energy security,” Mitschek makes it clear that the pipeline will not be making deals for gas supplies -- only agreements to transport those supplies from seller to buyer.

Moreover, he sees Europe’s gas needs soon doubling. He says the consumption of gas among the European Union's 27 countries was 500 billion cubic meters (bcm) in 2007, of which 300 bcm was imported and 200 bcm was produced in Europe.

"In the next 10 to 15 years, the overall gas consumption will increase from 500 [bcm] to 700 [bcm]," Mitschek says. "At the same time, the European production will go down from 200 [bcm] to 100 bcm, so that leaves room for 600 bcm of gas imports compared to 300 now. That means a doubling of the gas imports and, therefore, a huge necessity for transportation capacity."

And a huge necessity to diversify gas suppliers, including Iran.

Iran as future supplier

Washington sees Iran as a supporter of terrorism and believes the country is engaged in a secret program to build nuclear weapons, which Tehran denies. But given concerns over future gas supplies and whether Central Asia will have enough to keep Europe warm, Mitschek says Iran appears to be likely future supplier for the U.S.-backed Nabucco project.

"There is a pipeline connection from Iran to Turkey -- approximately 10 bcm [annually] are imported to Turkey from Iran," Mitschek says. "We know that Iran would like to improve and increase transport capacity in Iran from the south to the north, from the south Pars fields to Tehran and also to the Turkish border. So I could imagine that Iran will offer natural gas for export to Europe to interested buyers. Once more Nabucco is not a buyer of gas, Nabucco will provide the pipeline from the eastern Turkish border, or the Georgian border with Turkey, and from the Iranian border with Turkey."

Europe has so far shied away from making energy deals with Iran. But the need for energy resources is causing some European companies and countries to re-evaluate their ties with Iran, which estimates claim has 23 trillion cubic meters of gas. Mitschek mentioned one European company that recently concluded a deal with Iran for gas exploration.

"Yes, exactly, that is the scope of Nabucco, but moreover not only Turkey could act as a buyer of Iranian gas but also European companies may appear on the scene to buy Iranian gas," he says. "EGL [Elektrizitäts-Gesellschaft Laufenburg of Switzerland], for example, was announcing that they are on the way, or they already closed a supply purchase agreement, with Iran. So other European companies will follow. The question is when."

In March, EGL signed a 25-year deal with the National Iranian Gas Export Company for a reported 5.5 bcm annually starting in 2010. Washington objected to the Swiss company's agreement, but Swiss officials say there are no international sanctions against investment in the Iranian energy sector. Swiss officials also point out the deal benefits Italy by providing it with a new gas source of gas. The Swiss government says the deal could be worth up to $42 billion.

Swiss precedent

The U.S government is worried the Swiss agreement with Iran will set a precedent and that more European companies will sign contracts with Iran. Mitschek says if European companies do sign deals, Nabucco will be ready to ship the gas to Europe.

“As soon as a European gas buyer will contract gas from Iran, we will transport the gas through Nabucco," Mitschek says. "Iran announced recently that they are keen to construct IGAT-9, a pipeline from the south Pars field to the north to Tehran and finally to the Turkish border, and I could imagine that at a certain point in time -- maybe not on Day 1 of Nabucco but at a certain point in time -- as soon as the political situation will allow that, gas exports from Iran to Europe will take place. We have several statements also from the European Commission, Commissioner [Andris] Piebalgs and others that Iranian gas in the long-term is an issue for Europe."

Iran’s South Pars field, some 100 kilometers off Iran's southern coast, is believed to be the world’s largest gas field. Austria's OMV, a Nabucco shareholder, has signed a so-called Heads of Agreement -- a nonbinding document outlining the main issues of a tentative partnership accord -- with the National Iranian Oil Company to develop the South Pars field. Gazprom also signed an agreement with Iran in February to develop several blocs in South Pars.

Nabucco’s scheduled start in 2013 would coincide with the end of a possible second term in office of hard-line Iranian President Mahmud Ahmadinejad.

Big Caspian deposits

Beyond Iran, Nabucco is looking to the Caspian region as a key future supplier.

Azerbaijan, on the western side of the Caspian Sea, has some gas, but the big deposits are on the other side of the Caspian.

"I would say that gas from Turkmenistan and Kazakhstan is as important as the gas from Azerbaijan or the Middle East and other regions," Mitschek says. "We know that there is a huge potential in Turkmenistan. Companies involved in Nabucco have their upstream affiliates active in Kazakhstan. Therefore, we know that the exploration and production potential is very high."

Nabucco is hoping that an agreement can be made for a trans-Caspian pipeline to run along the bottom of the sea from Turkmenistan to Kazakhstan. Mitschek says the chances of building the pipeline look good and that some Nabucco shareholder companies are already active in Turkmenistan and Kazakhstan.

“Now there are meetings and negotiations between the presidents from Turkmenistan and Azerbaijan with respect to a trans-Caspian pipeline," Mitschek says. "I know that from our consortium partners in Nabucco, one of the companies sent exploration and production experts to the regions in Kazakhstan and in Turkmenistan to evaluate exploration possibilities offshore in the Caspian and onshore. And I'm sure that several companies of Nabucco, several shareholders will establish representation offices also in Turkmenistan and in Kazakhstan to improve the relationship, to deepen the relationship and at the end to reach salient purchase agreements.”

And Mitschek said it should not be a problem to find European investors to participate in the project, and he did not discount Nabucco participation.

"It will be an important issue for Europe," he says. "Azerbaijan will supply gas to Europe, but that will not fill Nabucco and other pipelines. Therefore, Azerbaijan has a double function -- one the one hand as a producer of gas to Europe and on the other hand as a gateway to the eastern part of [the Caspian] to Turkmenistan and to Kazakhstan. And I'm sure that this gas will flow, and if you ask if Nabucco itself could or would invest into the trans-Caspian, that's something which was not discussed among the shareholders so far. But I'm convinced that there will be European energy companies willing to invest in this pipeline that's only, I think, 200 kilometers, and it's not a big issue.”

25 percent from Gazprom

The European Union currently receives about 25 percent of its gas imports from Gazprom, which in the past has used gas exports as a political tool in neighboring Ukraine and Belarus. That partly explains Europe’s concerns about becoming too dependent on the Russian company.

Moreover, besides the Gazprom pipelines that already supply Europe, the Russian giant is planning a new pipeline -- South Stream -- that runs parallel to Nabucco. The media have made much about the competition between the two pipeline projects and suggestions have been made that only one will be built.

Mitschek, however, says Europe's gas needs are big enough to accommodate both pipelines.

"Concerning Nabucco versus South Stream, I would say that we will not construct 'either' Nabucco or South Stream, given the huge gas import needs in the future in Europe," Mitschek says. "I believe that we need more than one or two pipelines, huge pipelines to satisfy the transport requirements in the future. We will need LNG terminals at the coastlines in Europe, and we will need more than one or two pipelines to bring the gas to Europe."

Mitschek says while there is competition between European companies and Gazprom to lock up gas contracts, there is also cooperation between them. Mitschek points to the Blue Stream pipeline that sends Russian gas across the Black Sea to Turkey as possibly contributing supplies to Nabucco in the future.

'If we consider Blue Stream, then Blue Stream is a very important supply line to Turkey, supplying gas to Turkey," he says. "And so far, due to the fact that there is no pipeline link from Turkey to Europe, it is simply a pipeline supplying gas to Turkey. Imagine that once the Nabucco pipeline is in place then, of course, gas from Blue Stream could also be fed into Nabucco to reach southeast European markets, Austria, and also other regions in Europe."

And given the growing need for gas, Mitschek envisions even more pipelines in Europe’s future.

"I think southeast Europe and all Europe will need a lot more of these pipeline projects," he says. "And therefore we have to cope with -- we as the energy industry in Europe -- we have to cope with huge investments in the future."

Source: RFE/RL