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Thursday October 30th 2014

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New ball games

So has EU policy to diversify gas supplies through the “Southern Corridor” become a failure now that it’s clear that there will be no Nabucco pipeline running through Turkey?

Nabucco, whose major shareholders are RWE of Germany and OMV of Austria, has long been seen as the flagship EU pipeline project in the Southern Corridor. It was meant to take gas from Azerbaijan (and at a later stage other sources in Central Asia and the Middle East) through Turkey and South East Europe to the gas hub at Baumgarten in Austria, thereby significantly reducing European dependence on Russian gas. The EU has long lobbied in favour of the 3,900 km project.

Last week it became clear, however, that Azerbaijan and Turkey are close to a deal on the Trans-Anatolian Natural Gas Pipeline (TANAP). This will take Azeri gas from the Georgian-Turkish border to the Turkish border with Europe, effectively replacing the Turkish section of Nabucco. The Nabucco Consortium subsequently announced that it is giving up on its Turkish plans and will limit its ambitions to a pipeline running from the Turkish border to Baumgarten (“Nabucco West”), covering only 1,300 km.

This was widely reported as a failure of EU diversification policy in the international media, including for example the Financial Times, which said that the TANAP deal “marked the end of the road for a long-standing European plan … to reduce the Continent’s dependence on Russian imports”.

The European Commission, however, does not view things that way. The concept of the Southern Corridor does not favour a particular gas pipeline, one high-ranking Commission official said to European Energy Review recently. “We don’t care how the gas will come through the Southern Corridor to Europe, as long as it comes”, this official explained, on condition of anonymity. “We backed Nabucco at the start because it was all we had. But if there are alternatives, fine. We are not fighting for Nabucco.”

That’s a credible view – up to a point. Because, as our regular analyst Matthew Hulbert argues in a new analysis of the evolving Southern Corridor situation, there is a difference between the original Nabucco concept and a TANAP-Nabucco West combination. In the first case, gas flows to Europe would have been ensured. In the second case, they might not be. In this new concept, Azerbaijan will be able to divert gas flows to other destinations as it sees fit.

 

This, says Matthew, points to a wider issue that Europe has so far failed to sufficiently consider, namely the intentions and ambitions of the party that is to supply Europe’s “non-Russian” gas, namely Azerbaijan. Policymakers seem to assume, Matthew says, that the Azeri’s will be happy to deliver gas at the European border, count the money and go home.

 

But according to Matthew this is a mistake: their actions show that the Azeri’s want “in” on every part of the Southern Corridor value chain, all the way to European end consumers. And that, he says, turns the Southern Corridor into a whole different ball game. To read Matthew’s timely analysis, click here.

In addition, after our long weekend, we have some news for you from Brussels. Our correspondent Sonja van Renssen reports that the European refining industry has launched a fresh offensive against EU climate and environment policy at the first-ever EU round-table on refining organised by the European Commission last week. How about that for a new ball game? To read more about this, check out our European Energy Blog.

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