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13 Jul, 2009 06:24

Nabucco deal brings supply questions

The Nabucco gas pipeline has come a step closer to reality 4 EU states signing a construction deal with Turkey. But Turkey's Energy Minister claims Russia could supply gas to the scheme, making it more feasible.

The proposed Nabucco gas pipeline is being touted as a major element in diversification of energy sources for the European Union. It will bypass Russia, Europe’s main supplier.

The pay-off could be significant in terms of cheaper energy, especially for those completely dependent on external supplies like Hungary, Bulgaria and Romania. Nabucco needs sources of gas supply from Turkmenistan, Azerbaijan and Iran in the long run. But so far it’s not clear who will be able to fill the pipes, and when, according to Lev Snykov, analyst at VTB Capital.

”The key concern with Nabucco has always been about Turkmenistan being able to produce the necessary amount of gas, considering that they have commitments with respect to Russia, certain plans with respect to China.”

Construction has not even started yet, but Nabucco’s planners are already claiming the pipeline’s capacity will be boosted to 65 billion cubic metres a year.

Analysts say that comes as a reaction to the potential expansion of South Stream, the rival Russian-backed project.

Dmitry Aleksandrov, analyst at Financial Bridge, says Nabucco has faced a series of setbacks due to supply concerns, and from Turkey bargaining for a 15 % share of the gas from the pipeline, which will run through its territory.

“Potential transit countries for Nabucco have at the same time their commitments to an alternative Russian project of South Stream. There are also disagreements among Nabucco participants over price. It’s clear that current shareholders are unable to finance the project themselves.”

While Russia has funds to build its South Stream, Nabucco lacks financing. So far it’s not clear where the pipeline – already dubbed as Europe’s energy Silk Road – will get the money from.