Turkey and Azerbaijan has agreed to an earlier "agreement in principle" that had been informally leaked to the press two months ago. Now confidential sources cited by the Asia Times are saying that the deal is based on “concrete numbers”, a new bilateral contract for additional gas for Turkish domestic consumption as well as for further gas from the Shah Deniz Two deposit to be developed as a source for the Nabucco project.
Nabucco is designed to take gas from the Caspian Sea basin through Georgia and Turkey to the Baumgarten hub in Austria for distribution throughout the European Union, via Bulgaria, Romania, and Hungary. It was undoubtedly on this basis of the Azeri-Turkish agreement that Nabucco chief Reinhard Mitschek declared last week that the project was on course for entry into service in 2014, with construction slated to start next year.
According to experts, there has also been progress on the sourcing of Nabucco's gas. Azerbaijan recently announced that it would be able to supply not just the 8 billion cubic metres per year (bcm/y) planned for the first phase but indeed as much as 12 bcm/y. Recent rises in prices make the European market more interesting, as European importers seek an alternative to Russian gas.
Iraq agreed with Turkey to supply 8 bcm/y, whilst the European Union is negotiating with Turkmenistan for more gas, despite doubts about that country’s actual reserves, especially since it has already pledged supplies to China and Russia. Altogether, the various projects would bring Nabucco’s planned capacity to 31bcm/y.
Russia does not like Nabucco because it does not transit through its territory. As an alternative, it is promoting the South Stream gas pipeline, which would go under the Black Sea to Bulgaria, before branching off, one line to Greece and Italy, the other to Romania, Serbia, Hungary (or Croatia), Slovenia and Austria, with a total capacity of 63 billion cubic metres a year.
On 24 April, Austrian Chancellor Werner Faymann met with Russian Prime Minister Vladimir Putin in Moscow to sign an agreement to build the Austrian leg of the South Stream project.
"We want to realise this project at all costs, with the knowledge that our supplies to European clients must be diversified," Putin said.
The Russian prime minister added that South Stream had already secured suppliers, whilst the EU project was still searching.
Austria depends on Russia for about 70 percent its natural gas needs.
As for Nabucco, the consortium in charge launched the (pre-qualification) tendering process for procurement to identify companies that could supply pipes, valves, and other capital-intensive construction items that require long lead times for production.
Given the situation, Moscow is not standing idly by. It certainly does not want to be cut off from the lucrative European market. As part of its response, it has tried to include the Ukraine in its plan to increase the capacity of the network of gas pipelines that deliver gas to Europe through the Ukraine.
However, this would reduce the value of the South Stream project. Experts suggest that all this points to Russia trying to prevent or delay projects that would undermine its monopoly over Central Asian gas.
Ultimately, the energy war is heating up.