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Guest Post: Is the Nabacco Pipeline Worth the Projected $11.4 Billion?
The Myth Of Nabucco: Greed, Delusion and Geopolitics
Inside Beltwayistan, a number of Bushevik oil patch zombies still roam the recession-blasted landscape mindlessly chanting their Caspian mantra, "Happiness is multiple pipelines" - with the caveat that they flow westwards and bypass both Russia and Iran. They've now added a new word to their vocabulary, "Nabucco," and worse, have bitten a number of Obama administration officials and visiting European politicians, who have joined their shuffling ranks.
Their thinking remains somewhat clouded by primordial memories of Bush's "fuzzy math," as the statistics about Nabucco are contradictory, to say the least. State Oil Company of the Azerbaijani Republic (SOCAR) vice president Elshad Nasirov is now threatening to start selling Azerbaijan's natural gas, currently Nabucco's sole projected provider of throughput, to Asian countries if Europe further postpones Nabucco's construction.
Construction of the 56-inch, 2,050-mile pipeline, first proposed in 2002, is tentatively slated to begin next year and scheduled for completion by 2014. At a cost initially estimated at $11.4 billion and rising, Nabucco will be the most expensive pipeline ever built, more than three times the cost of the 1,092-mile Baku-Tbilisi-Ceyhan (BTC) oil pipeline. Raising such a significant sum in a time of global recession would be an article of faith at best.
Even assuming that Nabucco's boosters manage to assemble a coterie of deep-pocketed suckers - er, investors, the only promised current volume for Nabucco's proposed 31 billion cubic meters (bcm) annual throughput is Azerbaijan's future offshore Caspian Shah Deniz production, estimated at 8 bcm. Even if Shah Deniz does end up supplying Nabucco, its currently promised throughput leaves a deficit of 23 bcm, leading to the question of exactly whose natural gas will Nabucco carry if SOCAR drops out, a worst case scenario requiring the Nabucco consortium to scrounge not 23 bcm, but all 31 bcm per annum, especially as Washington's geopolitics invalidate the participation of either Russia or Iran?
For those with knowledge of energy history in the post-Soviet space, the 419-mile, $500 million Odessa-Brody oil pipeline, completed in 2001, provides a cautionary tale to building pipelines without throughput guarantees. The Ukrainian government rashly built the self-financed line without foreign investment, stretching from its Black Sea port to the Polish border to provide Central Europe with oil despite not having firm commitments from a single oil producing nation for export throughputs. After the pipeline remained unused for three years, a reluctant Kiev was forced in 2004 to agree to transport Russian oil southwards in the opposite direction, for export from Odessa rather than northwards to Central European markets as originally envisaged.
Further complicating the picture are the differing proposed transit and pricing policies of the countries that Nabucco will pass through. The biggest geographical hurdle impacting the bottom line is the fact that, if as some Nabucco boosters aver, Turkmenistan can be persuaded to contribute natural gas, the seabed of the Caspian has yet to definitively be delineated amongst the sea's five riparian states. The question remains unresolved 18 years after the implosion of the USSR dashed the 1920 and 1941 Soviet-Iranian bilateral treaties covering the issue of offshore waters. Building a pipeline across seabed whose ownership is in dispute will enrich maritime lawyers, but few others.
The issue of competing claims over Caspian national waters and seabed is hardly a pedantic exercise. In July 2001 Iran dispatched military aircraft and a warship to intimidate two Azerbaijani survey vessels contracted by BP to leave the Alov-Araz-Sharg field, a site that Azerbaijan claimed was well within its national sector, but disputed by Iran. It seems unlikely Russia and Iran would stand idly by as trans-Caspian sub-sea pipelines, which exclude them, are constructed.
Hopes of Turkmen gas filling Nabucco's gas deficits are yet more wishful thinking. Last month the Central Asia-China gas pipeline connecting Turkmenistan's Caspian shore natural gas fields to Xinjiang was inaugurated in the presence Chinese President Hu Jintao, Turkmenistan's Gurbanguly Berdymukhamedov, Kazakhstan's Nursultan Nazarbayev and Uzbekistan's Islam Karimov. This year 13 bcm are scheduled to transit the new pipeline, rising to 30 bcm by the end of 2011 and over 40 bcm by 2013, effectively soaking up Turkmenistan's projected natural gas increases for the foreseeable future. Any further gas from Kazakhstan, an even more distant proposition, would face the same geographical constraints as regards the Caspian, while Gazprom also soaks up its surplus natural gas production.
Which leaves any but the most deluded Eurocrats and Beltwayistan apparatchiks with an uncomfortable "fuzzy math" question - which of the five Caspian riparian states of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan are going to provide Nabucco's projected 31 bcm annual throughput?
But never mind - driving Nabucco is a complex skein of greed, European foreign policy agendas and the ongoing belief, a delusional legacy of the Bush administration, that somehow Caspian energy "belongs" to the West, and furthermore, that both Russia and Iran will complacently stand back while Western capitalism pulls off another energy initiative dwarfing BTC.
European interest in Nabucco is underpinned by the unpleasant realization that since 1991 it has become more and more dependent upon Russia for natural gas imports, with Russia's state monopoly Gazprom now supplying 40% of Europe's imports. As Moscow still largely relies on its Eastern European Soviet-era pipeline network, the annual winter spats between Moscow and Kiev over payment rates and transit have deeply traumatized Brussels to conduct a frantic search for alternatives in a desperate attempt to achieve energy security. Nabucco is designed to carry Caspian and Central Asian natural gas via Turkey and the Balkan states to Austria while bypassing both Russia and Ukraine.
A situation that can only worsen with time, as the EU's European Commission projects that the EU's gas consumption will increase by as much as 61 percent from its current level of 502 bcm to 815 bcm by 2030.
The hard sell has now begun over Nabucco thus represents the answer to Eurocrats' prayers. Nabucco's consortium shareholders are Austria's OMV, Hungary's MOL, Bulgaria's Bulgargaz, Romania's Transgaz, Turkey's Botas and Germany's RWE with 16.7 percent apiece. Notably, none of the countries involved has any significant natural gas production of their own.
If Nabucco is to succeed, there is one potential supplier that could step into the supply void, but for Washington, it is a country too far - Iran. Iran contains 16 percent of the world's natural gas reserves, second only to Russia. Washington has clearly and repeatedly stated its opposition to including Iran in Nabucco, as last month U.S. Special Envoy for Eurasian Energy Richard Morningstar stated, "We have been constantly saying that, in our opinion, Iran is not in a position to become a part of any new projects in the Southern Corridor."
In response, speaking after a Dec. 8 Iran-UAE joint economic commission meeting in Tehran, Iran's Foreign Minister Manouchehr Mottaki bitingly observed, "We have never heard that Europeans have entrusted the Americans with their authority to decide on the pipeline." Motakki then added a blunt dose of reality, stating, "Speaking about the Nabucco pipeline without Iran's participation would amount to nothing but a pipeline void of gas." Mottaki's comments echoed those of Russian Prime Minister Vladimir Putin, who said in March that Nabucco was not feasible without Iranian participation.
Nabucco also has its local critics. Azeri political scientist Ilgar Velizade has noted that Nabucco's high cost, now estimated at $11.8-13.1 billion, is simply untenable in the context of the current global financial crisis. Velizade consequently believes that the less expensive Poseidon pipeline option, which would deliver natural gas to Italy from Shah Deniz, could be as important for Europe, Azerbaijan and Turkey as Nabucco.
Are the Azeris serious, or are they just bluffing, hoping to stampede a tidal wave of investment cash into Nabucco? Hedging its bets, Baku is already exploring alternative markets for its gas. On Dec. 26 SOCAR President Rovnag Abdullayev said that while under the terms of an Oct. 14 contract under whose terms Azerbaijan was to supply 500 million cubic meters (mcm) of gas to Russia beginning Jan. 1, his company would now double the amount to 1 bcm. While this represents a fraction of that promised to Nabucco, Gazprom has already indicated that it will happily purchase any increases in Azeri natural gas production at world prices.
Nabucco remains stoked by the increasingly passé ideological concerns of a Bush-era administrative legacy promoting pipelines bypassing both Russia and Iran further fuelled by Brussels' fears of ongoing Ukrainian-Russian pricing spats disrupting deliveries as in years past. In the meantime, Moscow undoubtedly will press forward with its Nord Stream and South Stream gas pipelines alternatives in an attempt to reassure Europe that Russian pipelines bypassing Ukraine will alleviate future concerns about energy security.
The zombies have gotten their wish - Caspian energy now indeed does flow through new multiple pipelines. The only problem for the wizards of Wall Street and the City is that they now flow mostly eastwards, to China. As for Nabucco, what is Azeri for "expensive white elephant, son of Odessa-Brody?"
This article was written by Dr. John C.K. Daly for OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com
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The US may scruple to buy Iranian gas but the Germans and French certainly won't (not that the French need to, being nucleared up to the eyeballs) and the UK will no doubt rely on being sufficiently out of the way as to declare gas imports as "European". Nabucco will not happen.
Happy New Year, all. Check spelling of pipeline name in title of post.
Would love to see all of Cheney maps that were classified.
http://www.judicialwatch.org/printer_iraqi-oilfield-pr.shtml
More woolly thinking by cronic BDS sufferers. Remember Moore's Fahrenheit 9/12 where the neo-cons supposedly invaded Afghanistan in order to be able to build this pipeline? Now we see that there isn't any there, there. Nor was there any there to the accusations of "war for oil". Nor is there an there for the claims of AGW. Nor was there any there to the claims of torture at Guantanamo.
What is the common thread here? Liberal Idiots (are there anything but?) falling hook, line and sinker for every "vast right wing conspiracy" "exposed" by the Obama worshipping media.
Smooth move liberals, you have destroyed the country. I hope you're ready for the backlash once this house of straw that you constructed collapses, and the millions of unemployed joe six pack's turn on you with all the guns and ammo that they have been hoarding. Come to think of it, all the welfare cases that no longer receive their monthly checks are going to be pissed at you too.
So... you're saying it was the weapons of mass destruction we found in Iraq? Or the massive evidence in favour of A.Q. links to Saddam?
Sorry rep/right-wing morons have also gone a very long way to destroying the country. It was meant to be that way, both sides of the same counterfeit coin!
No, it was the brainless zombies who followed Cindy Sheehan and took the turncoat Democratic parties bait and claimed that it was never for anything else but "WMD". But I wouldn't expect a pea-brained progressive to ever be able to get his head around anything that he wasn't told to think by Robert Gibbs. Is that what you listen too all day on your Ipod? Hell, you can't even figure out how to add your own user, so you are stuck on dumb, er, Anonymous.
It was a war for oil. Who controls most of that oil? US oil companies. It was an illegal war to begin wit. The fact of the matter is that the US is so incompetent that at this point they don't even know what they are doing. They are failing with their civil war in pakistan. The US has already lost two proxy wars with china, ie. vietnam and korea. Now the US is losing a third proxy war in afghanistan. The US also underestimated the security of the transafghan pipeline.
By the way confederate, the neocons are not conservatives by any means. They are all zionist ideologues. These are the same zionists that support more "third world" immigration. They are really the complete opposite of what you white supremacists would idealize. Of course you are too asinine to understand this dynamic.
In that sense the dems and the repubs are the same, they have been for a while. They both kowtow to the military-industrial complex and the federal reserve. The difference is that the repubs prefer the bankrupt chicago school and debunked milton friedman whereas the dems prefer the bankrupt keynesian school and the debunked keynes. Neither party can help the US only hurt it.
Here's something worthwhile from Nabucco (the Verdi opera, that is): http://www.youtube.com/watch?v=4BZSqtqr8Qk&feature=related Reportedly the only encore the Met has ever allowed...
THORIUM
IT"S WHAT SHOULD BE FOR DINNER
-MobBarley
Looks like the staff over at Minyanville has picked up the story.
There is no doubt that there is a lot of risk involved in the construction this pipeline. But frankly I'm for most anything that breaks the Gazprom monopoly in the region.
http://www.minyanville.com/articles/oil-nabucco-pipeline-iran-russia-chi...
"A situation that can only worsen with time, as the EU's European Commission projects that the EU's gas consumption will increase by as much as 61 percent from its current level of 502 bcm to 815 bcm by 2030"
Hmmm a 61% increase in gas consumption?
Is the EU planning even more mass Muslim immigration, mass Asian immigration, mass latin immigration or mass African immigration or a combination of all 4?
a 61% increase is far more than domestic "organic growth" which is relatively flat.
There is an excellent article on Nabucco in the Fall 2009 issue of Journal of International Security Affairs.
http://www.securityaffairs.org/issues/2009/17/smith.php
I've got an article coming on Central Asian energy politics and it's relationship with the SCO.
Pipelineistan and it's relation to China and Russia and South Asia, wth Iran and India to boot, are all part of the calculus that made US boots on the ground in AfPak and Iraq inevitable. Great Global Strategic thinkers are drawn to the old Great Game of the region like moths to a flame. No matter that we will spend dozens of time the worth of the energy flowing from the region annually perhaps forever. That is a small price to pay for the illusion of control. The desire to play Risk is so strong that the actors on the Potomic and elsewhere don't even mind that the intended beneficiaries are in Old Eurp, who they otherwise hold in contempt.
China scored a win just last week with the cementing of the deal for the Central Asia Pipeline from Turkmenistan.
China needs Iraqi oil. But instead of spending more than US$2
trillion on an illegal war, Chinese companies got some of the oil they needed from Iraq by bidding in a legal Iraqi oil auction. And in the New Great Game in Eurasia, instead of getting bogged down in Afghanistan, they made a direct deal with Turkmenistan, built a pipeline, profited from Turkmenistan's disagreements with Moscow (Gazprom stopped buying Turkmen gas last April, which cost the Central Asian "stan" $1 billion a month), and will get most of the gas they need.
http://www.atimes.com/atimes/Central_Asia/KL24Ag07.html
It's pretty difficult to be bullish on America when the nation is run by silly romantics with outdated visions of empire. Who while fighting for that empire are in fact weakening it. Still, at least we have embraced torture as a nation so it isn't all bad I suppose.
Good points, thanks for the link. I think Nabucco will end up an empty pipeline in 2013. They will be unable to fill it from the Caspian Sea.
I am not sure of that all the time rapier.
I understand what you are saying....but I think the Iraqi venture was about reducing strains on global demand...and as Iraqi oil comes on stream it bleeds Russia...whose need for cash makes it pump furiously at any price despite having perhaps less than two decades left out of their horrible inefficient extraction of known reserves and their asful record at new production.
Unfortunately, the state of the Iraqi Oil Industry is far worse than we thought and will take even longer to repair (and no longer as uncertain demand now makes investing there at the outer edge of interest to Western Majors) under current circumstances
Personally, I am waiting for the day when we find that some American Nun was insulted on the streeets of Caracus in 1982 and therefore we have to send the Marines in for a week to restore the natural desire of the people to be our 51st state
Less than two decades left of production?
The same could be said for saudi arabia or any other major producer of conventional oil.
Which nation would attract investment dollars first?
A pliable one with good relationships and a track record of safe dealings with the West or one whose proven track record at not respecting property rights or contracts with foreign investors?
From which one is it easier to extract efficently while intellectual property of the technology is safe?
From which one is effiecient transport out of the nation under long term contract terms possible?
Those are the criteria some of the majors use to choose where to make investment choices about new exploration, new extraction equipment, new refining capacity and new production equipment and facilities.
Sounds like we also disagree with the projected reserve potential in each nation as well....but that is more debateable than the track record on the investment criteria listed above.
Obviously, it can be debated. But the point of view can also be well supported.
just my 2 cents