Pipeliners

June 11, 2008 - By Judy Dempsey - BERLIN: After months of delays and setbacks, Nabucco, the European Union's ambitious natural gas pipeline project, received its first supply order, the EU said Wednesday. The order is to ship gas from Azerbaijan for sale to Bulgaria. The pipeline, planned to open in 2013, was designed to reduce European dependence on Russian natural gas. Under the agreement, Bulgaria has agreed to buy more than one billion cubic meters, or 35 billion cubic feet, of natural gas a year from Azerbaijan, which is rich in energy resources and crucial for supplying Nabucco. That amount represents about 12 percent of Nabucco's capacity in its first phase and 18 percent of Bulgaria's needs. "This is good news," said a European Commission official who asked not to be identified because he was not authorized to speak on the record. "Until now, Nabucco had not been going so well." The planned 3,300 kilometer, or 2,050 mile, pipeline has been beset with difficulties and is two years behind schedule. The consortium building it announced last week that Nabucco's development cost would increase by nearly 60 percent, to €7.9 billion, or $12.3 billion, because of the rising costs of commodities, particularly steel. That has raised doubts among some consortium members - which comprise OMV of Austria, MOL of Hungary, RWE of Germany, Bulgargaz of Bulgaria, Transgaz of Romania and Botas of Turkey - over whether the project would deliver an adequate return on investment. Bulgaria's agreement with Azerbaijan coincides with renewed attempts by Russia - which supplies over a third of Europe's total gas needs - to win over more European energy companies and countries to its competing South Stream pipeline. "Russia will try to prevent Nabucco as far as they can," said Niklas Nilsson, project coordinator of the Central Asia-Caucasus Institute and Silk Road Studies Program in Sweden. "This poses a big question for the EU: Can it ever agree to a strong and unified energy policy among all the member states? If not, Russia will be able to tick off one Nabucco partner after the other." This week, OMV, which is the Nabucco's project coordinator, agreed to take on the same role for South Stream, which is being developed by Gazprom, Russia's state-controlled natural gas company. European countries, too, have supported South Stream, including Bulgaria and Hungary. South Stream, which Gazprom is developing alongside Eni, the Italian energy company, is aimed at reducing Russia's dependence on transit countries, including Ukraine and Turkey, for its gas destined for European markets. Aleksander Medvedev, a deputy chairman of Gazprom, announced last week that a Russian-Austrian intergovernmental agreement on the project would "be signed very soon." The European Commission dismisses suggestions that South Stream would be a major competitor to Nabucco, even though it would travel along the same route, running through Bulgaria then spurring north and south.