Nabucco edges closer to reality as questions on supply and funding remain

EU officials had hoped to walk away from the Prague energy summit with concrete commitments for construction of a new gas from Central Asia through the Caucasus, but the end result was watered down.

The agreement signed in Prague only binds gas producers to identify non-committed gas and oil volumes which may be dedicated to the EU. More importantly, key gas producer Turkmenistan, which is regarded as a potential resource base for the EU’s proposed Nabucco pipeline – didn’t sign up to the declaration.

“Turkmenistan, they are stating a position that basically their policy is that they put the gas at the border, and afterwards its up to others to engage. They don’t want to assume legal obligations more than that. And we understand the point. But they are, and they’ve stated it very clearly, as committed as we are to the idea of diversification of supply, and also of energy security."

Some countries were more committed. Turkey, an EU candidate member and a key transit nation, promised to clearly establish rules for governing transit fees for Nabucco but no earlier than June.

Talks in Prague resulted in a new declaration of political will of several countries to set up a southern corridor with Nabucco as its core project. But it is still unclear whether business will find the common ground as easy as politicians. Recently Azerbaijan and Turkey failed to agree on gas prices and transit fees. Turkmenistan is reluctant to contract its gas to the EU without guarantees it will be transported while the EU still can’t name investors ready to finance Nabucco.

Russia’s Deputy Energy Minister, Anatoly Yanovsky, said large energy projects like Nabucco require more than just political commitments.

“Such an infrastructure project can’t be realised without a sufficient resource base. Also, this or that route, of the new energy corridor, has a direct impact on investment and the cost of the project, which in its turn is reflected in the final tariff paid by the consumer. Only when all these issues are settled can the project can be successful. Russia takes all these issues into in account when building its Nord and South Stream pipeline projects.”

The European Union's goal is to obtain some 10% of the gas it consumes from the Middle East and Central Asia. The EU says bypassing Russia to get that gas will increase the energy security of the region, after a series of disputes between Russia and Ukraine have seen gas shut offs in recent winters. But Vaclav Bartuska, Ambassador-at-Large for Energy Security, Czech Republic believes the project must be about more than just that.

“Frankly speaking i don't think that exchanging Russia for Turkmenistan or Ukraine for Turkey – if it was the only step – would be that very smart.”

Some European officials say if EU really wants to increase the security of supply it should boost the share of LNG in its energy consumption and develop an internal energy market.