Europe Tries to Break Its Russian Gas Habit

Europe Tries to Break Its Russian Gas Habit

For a quarter of a century, Russia has been Europe’s single biggest gas supplier, providing about a third of all the gas the European Union uses each year. But while the gas is cheap and plentiful, this arrangement has created an energy dependence that makes the E.U. vulnerable to Moscow’s shifting moods. That was the case in January, when Russia tried to settle a payment dispute with Ukraine, its main transit country, by turning off the taps. In the three weeks it took to get the gas flowing again, Bulgaria’s reserves ran out, Slovakia was forced to declare a state of emergency, and countries as distant as Germany and the Czech Republic were affected.

Now the E.U. is attempting to wean itself off its addiction to Russian gas with a new pipeline. On Monday, five European governments signed an agreement in Ankara to build the Nabucco gas pipeline, which will bring Middle Eastern and Central Asian gas to Western Europe via Turkey and the Balkans — completely bypassing Russia.

Although the 2,050-mile pipeline is still at least six years away, officials hailed the “new silk road” for finally bringing some balance to the E.U.’s energy security. European Commission President José Manuel Barroso said the Nabucco project “is of crucial importance for Europe’s energy security and its policy of diversification of gas supplies and transport routes.”

The five countries that signed the agreement — Turkey, Romania, Bulgaria, Hungary and Austria — have been working on the ambitious $11 billion Nabucco project for seven years. The development of the pipeline, which will run initially from the Turkish capital to Baumgarten in Austria, has been beset by political bickering. But if completed as planned by 2015, the line could bring up to 31 billion cu m of gas a year from the Caspian Sea and the Middle East across Turkey and into Europe.

That’s still only about 10% of the E.U.’s gas demand. By contrast, Russia exports 140 billion cu m of gas to the E.U. every year. But Nabucco could break Russia’s stranglehold over countries that are most dependent on its gas and most vulnerable during winter cutoffs, such as Bulgaria, Slovakia and Romania. That dependence has also long undermined the E.U.’s efforts to create a common market for European energy, with transparent pricing and a single negotiating stance with suppliers like Russia.

Russia insists it is a reliable partner and blames Ukraine, which transits 80% of its gas exports, for the recent winter spats. Moscow’s solution is to bypass Ukraine and supply Western Europe directly through the Nord Stream pipeline and the South Stream . But that would do nothing to ease the E.U.’s reliance on Russian gas, and most E.U. leaders don’t see it as a viable option. Last month Barroso warned that “the E.U. must not sleepwalk into another gas crisis.”

But Nabucco still faces some massive hurdles before it can be considered a rival to Russia’s supply. For a start, there is uncertainty about which countries will actually join the pipeline. Azerbaijan is the only country currently able to supply the 15 billion cu m a year the line needs to kick off its first phase. “We don’t even have a map showing us which countries will be the sources and which will be the transits,” says Ana Jelenkovic, an analyst at research consultancy Eurasia Group.

Turkmenistan, with the world’s fourth largest reserves of natural gas, would be an ideal source for Nabucco, but it would need a pipeline under the Caspian Sea, where there is as yet no seabed agreement. At the signing ceremony on Monday, Turkish Prime Minister Recep Tayyip Erdogan also talked of supplies from Iraq and Iran, but political tensions and security concerns make them distant prospects. Even security in Turkey is an issue: last year Kurdish separatists attacked the Baku-Tblisi-Ceyhan oil pipeline, halting supplies for 19 days.

Funding is another issue. The European Commission has promised $350 million from the E.U.’s $7 billion economic-stimulus fund to jump-start the project, and the European Investment Bank has said it is prepared to finance up to a quarter of the pipeline’s cost, about $3 billion. But with other private and public sources hesitating to commit, Nabucco’s future is still in doubt.

Even if Nabucco succeeds, the E.U. will face other challenges, says Tomas Valasek, director of foreign policy at the London-based Centre for European Reform. “Nabucco is only part of the puzzle to improve Europe’s energy security,” he says. “It also needs to reduce its overall consumption, improve its efficiency, create a fully liberalized energy market and speak as one voice when it deals with Moscow.” With so much to do before the E.U. can secure its own energy future, odds are it will continue to rely on Russian gas for many years to come.

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