revista presei pe energie 2 februarie – part IV

2011/02/02

Young Professionals for Energy Security (YPFES): The Geostrategic Importance of Nabucco for the United States and Eastern and Central Europe

What is Nabucco?

The Nabucco Pipeline is a natural gas pipeline that is planned to be built from Erzurum, Turkey to Austria (through Bulgaria, Romania and Hungary) and its goal is to provide an alternative route and supplier for Europe’s energy needs. Its capacity is planned to be 31 billion cubic meters per year. While the Nabucco project is seen as a positive step by most Western European states (and the United States) in their quest toward energy security, it is seen as a threat by Gazprom, the main exporter of Russian natural gas, who has proposed a pipeline that would be in competition with Nabucco called South Stream.

PROS

– Currently Russia supplies one third of all the EU’s gas needs. The Nabucco line would lessen Europe’s dependence on Russia for natural gas and allow Europe to diversify its supply, giving it more energy security in the long run, especially considering consumption is projected to rise.

– Due to pricing disputes with Ukraine, which transports most of Europe’s gas across its borders, there have been serious supply cuts to Europe that have been felt most sharply in the dead of winter. Because of this, the issue of diversification has become more urgent.

– The pipeline would facilitate a more competitive gas market in Europe, with the potential of lowering the price of the Russian gas.

– Nabucco will promote the unification of a ‘EU energy policy’, enabling a tighter and geopolitically stronger block.

– Nabucco is also a relatively inexpensive investment ($6.2 billion, some sources say $10.4 billion), compared the amount of money Europe is paying to import gas from Russia plus the money it will need to invest in existing infrastructure improvements in the coming years.

CONS

– The Shah Deniz field’s supply of natural gas (Azerbaijan) would only be viable for a ‘first commercial phase’ of transport to Europe. After this phase, the pipeline looks to supply from the Middle East, including Iran where the geopolitical situation is currently unstable and deals have been put on hold because of sanctions from the west.

– While there is more than one option for further gas supply to Nabucco, the risks are large, as most of these supplier states are geopolitically controversial and some even unstable.

– While Europe and the United States have come out in favor of the Nabucco line, some western European states, less dependent than their Eastern counter parts on Russian gas, have expressed quiet apprehension (In particular, Germany, Italy, and France).

Why the PROS Outweigh the CONS

As seen above, one of the main problems with Nabucco is where the supply will come from. With predictions of Europe’s increased energy consumption, along with an increase of natural gas as a primary energy source and an increase in the amount of natural gas imported to Europe, Europe is heading toward change in its energy supply and dependence. Eastern and Central Europe (ECE) will be most affected by this dependence on Russian gas, as the Kremlin may use this leverage as an instrument of state power. The energy security advantages that Nabucco has the potential to offer will be invaluable for ECE. Without Nabucco, ECE will continue to depend on the Russian supply; and some analysts agree that this dependence will increase Russia’s influence on many U.S. allies and even on the European Union as a whole.

Novinite: Bulgaria Tangled in New Gas Price Talks with Gazprom

Bulgaria’s state natural gas company Bulgargaz has started a new round of talks with Russian energy giant Gazprom on the price of natural gas supplies.

Bulgargaz CEO Dimitar Gogov and Gazprom CEO Alexei Miller have met in Moscow discussing anew the price that Bulgaria pays for Russian natural gas, the Russian press reported Wednesday.

Gogov and Miller have discussed the possibilities for signing a direct commercial contract between the two state companies, which is expected to be signed by the end of June 2011, according to unconfirmed reports.

The two major issues in Bulgaria’s gas talks with Gazprom are the Bulgarian demands for lower prices and for elimination of three intermediaries.

Over 90% of Bulgaria’s natural gas comes from Russia. Preliminary data shows that in 2010 Bulgaria bought a total of 2.6 billion cubic meters of natural gas fromRussia, the Vedomosti newspaper reports.

Vedomosti points out that Bulgaria demands the removal of two of the three companies acting as intermediaries between Gazprom and Bulgargaz because it views them as unnecessary.

The three intermediaries are the Bulgarian company Overgas, the German companyWintershall, and Gazprom‘s own subsidiary, Gazprom Export. Bulgaria wants to sign a commercial contract only with the third company. Media reports have claimed indirect or direct connections between Gazprom and the other two companies as well.

At the end of 2010, one of Bulgaria’s contracts with Gazprom expired; it was for the delivery of 1 billion cubic meters of Russian natural gas per year. However, Bulgargaz has also other contracts with Gazprom expiring at the end of 2011 and 2012. Bulgaria’s all contractual relations with the three intermediaries are set to expire at the end of 2012.

During Russian Prime Minister Vladimir Putin’s visit to Sofia in November 2010,Gazprom announced it was going to offer Bulgaria a new price package stipulating a 5% to 7% reduction in the price of Russian gas supplies by the end of 2012.

According to another Russian publication, RusEnergy, the development of the futureSouth Stream gas transit pipeline was also a topic of the Bulgargaz-Gazpromtalks in Moscow this week.

Bulgargaz and Gazrpom signed a road map for the construction of the Russian sponsored South Stream pipeline in Varna in July 2010, and during Putin’s visit in Sofia in November 2010, they signed a shareholders’ agreement for the project company, which is to construct the Bulgarian section of South Stream. Both parties will have 50% of the shares in the joint venture.

The preliminary survey for the Bulgarian section of South Stream is expected to be completed by the end of March 2011, and after that Bulgaria will make a final decision on an EUR 500 M investment in its section of the South Stream project.

Novinite: Turkish Minister ‘Delays’ Nabucco till 2017

A statement of Turkish Energy Minister Taner Yildiz has delayed by two years the entering into operation of the EU-sponsored gas transit pipeline Nabucco.

During a meeting with Finland‘s Minister for Foreign Trade and Development Paavo Vayrynen, Yildiz declared that Nabucco should start delivering natural gas to Europe in 2017. The official deadline for the completion of the project and the first gas supplies is 2015.

“Yildiz explained that the gas pipeline Nabucco, to be constructed from Central Asia to Europe, will make Turkey an even more important geopolitical actor. The target for completion of this 4 000 kilometres long pipeline, passing through seven countries, is in 2017. At that time, it could cover approximately 5% of Europe’s energy needs. The completion of Nabucco would link Europe besides to the resources of Central Asia, also to those of the Middle East. This would enhance energy safety of Europe and would be an ideal tool for balancing prices,” reads the announcement of the Ministry for Foreign Affairs of Finland about the Vayrynen-Yildiz meeting.

It is unclear what led the Turkish Energy Minister to “delay” the Nabucco project by two years; in a similar development in March 2010 EU Energy Commissioner Guenther Oettinger said that Nabucco will be ready in 2018. This led Nabucco Gas Pipeline International, the Nabucco consortium, to clarify Oettinger’s words as meaning that the pipeline will operate at full capacity in 2018.

According to RusEnergy, a Russian consultancy, 2017 coincides with the planned development of Azerbaijan‘s gas field Shah Deniz II. Several days ago during a visit in Baku, Turkey‘s Energy Minister said Azerbaijan will take part in Nabucco after a careful analysis.

Two weeks ago, the EU and Azerbaijan made a “breakthrough” deal for the supply of natural gas from Azerbaijan to the Union, including via the Nabucco pipeline.Azerbaijan, together with Iraqi Kurdistan, will be the major initial supplier of natural gas for the Nabucco gas transit pipeline.

In November, Turkmenistan announced it was ready to provide the project with more natural gas that it can handle, a revolutionary statement of Turkmenistan’s First Deputy Prime Minister Baymurad Khojamukhamedov described the NabuccoConsortium as very promising leaving the Nabucco Consortium convinced that it will strike a supply contract with Turkmenistan.

Khojamukhamedov said Turkmenistan could provide up to 40 billion cubic meters ofnatural gas per year, more than the planned capacity of Nabucco which is 31 billion per year.

Christian Dolezal, Spokesperson of Nabucco Gas Pipeline International GmbH, the Vienna-based project company, has explained that in order to secure international funding for the construction of the pipeline, Nabucco Gas Pipeline InternationalGmbH needs to secure between 10 and 18 billion cubic meters of natural gas per year.

Dolezal said the first gas supplies for Nabucco are expected to come fromAzerbaijan – about 8 billion cubic meters per year at first, of which 6 billion could come from the Shah Deniz 2 field. Another 10 billion cubic meters are expected from Iraqi Kurdistan, and the consortium is awaiting the outcome of talks with the Iraqi government.

The Nabucco gas pipeline is supposed to reduce EU’s energy dependence on Russia by bringing in natural gas from the Caspian region, Central Asia, and the Middle East.

The construction of the Nabucco gas transit pipeline will start in 2012, and the first natural gas deliveries through it should be a fact in 2015.

The Nabucco shareholders are: Bulgarian Energy Holding (Bulgaria), Botas (Turkey), MOL (Hungary), OMV (Austria), RWE (Germany) and Transgaz (Romania), Each shareholder holds an equal share of 16.67% of Nabucco Gas Pipeline International GmbH.

Novinite: Greece: Bulgaria’s Balking at Oil Pipeline Is ‘Madness’

Bulgaria’s evolution towards a negative position with respect to the construction of the Burgas-Alexandroupolis oil pipeline in unjust and unjustified, according to a Greek Deputy Minister.

In an interview for Interfax Monday, Yannis Maniatis Deputy Minister of Environment, Energy and Climate Change of Greece, has described as “madness” Bulgaria’s position against the construction of the troubled project for transport of oil from the Black Sea to the Mediterranean.

“If someone’s position on the project has changed, this is not Greece‘s position. What changed is the position of our Bulgarian partners. From the very start of the discussions to this day all governments of Greece have supported the idea for the construction of this oil pipeline firmly and decisively,” Maniatis said.

While he points out he hopes that Bulgaria will eventually come to its senses, and will realize the importance of the Burgas-Alexandroupolis project.

“Indeed, if the Greek side and the Greek structure, based on European norms and laws, have confirmed that the project does not pose a threat to the environment, how can the corresponding structure of another EU member state to adopt some kind of the opposite decision? This is, in truth, some kind of madness. We have stated this openly and very much hope that our neighbors and friends in Bulgaria, too, will come to the same opinion,” the Greek Deputy Minister says when asked ifGreece cannot get the EU institutions to prod Bulgaria for the realization of the project.

Maniatis says Greece expects that in February or March Bulgaria will come to the conclusion that Burgas-Alexandroupolis is environmentally safe; he emphasizes that many European energy companies and banks have indicated they wanted to invest in the oil pipeline.

In 2010, the Burgas-Alexandroupolis oil pipeline – one of the three major Bulgarian-Russian energy projects – ran into much disrepute with the Bulgarian government of PM Borisov.

In December, news emerged that Bulgaria failed to pay the EUR 6 M that it owes as its contribution to the joint project company with Greece and Russia, which is supposed to construct the Burgas-Alexandroupolis oil pipeline.

Ever since the center-right government of Bulgarian Prime Minister Boyko Borisov took office in the summer of 2009, it has been balking at the construction of theBurgas-Alexandroupolis oil pipeline, which had been promoted vigorously by the formed Socialist-led Stanishev Cabinet and the Socialist President of Bulgaria, Georgi Parvanov. It has also been met with staunch resistance along Bulgaria’s southern Black Sea coast over environmental concerns.

In the summer of 2010, Borisov said that Sofia has no money to participate in the construction of the pipeline. Later Sofia has agreed to pay EUR 4.88 M as a contribution to the project company, Trans-Balkan Pipeline. The Bulgarian authorities, however, have made the construction of the pipeline conditional on complex environmental assessment procedures.

In November 2010, the Bulgarian Environment Ministry said the environmental impact assessment of the Burgas-Alexandroupolis oil pipeline is inadequate and needs to be reworked; the ultimate decision about whether Bulgarian will take part in the project has been put off for 2011. Bulgarian Prime Minister Borisov, however, has written off the project on a number of occasions, declaring that there is no way the ultimate environmental assessment would be positive.

In December, Greece‘s Deputy Prime Minister Theodoros Pangalos was especially critical of Bulgaria as regards the issue of the construction of the Burgas-Alexandroupolis pipeline claiming that the rightist governments in Bulgaria in the past 15 years – including the current Borisov government – have served American interests by blocking the progress of the oil pipelineGreece has been a strong proponent of the pipe.

Russian Prime Minister Putin and Energy Minister Shmatko have generally expressed “understanding” for the “environmental concerns” of the Bulgarian state but have also insisted on the realization of the project.

Bulgaria, Greece and Russia agreed to build the pipeline between Burgas and Alexandroupolis, taking Caspian oil to the Mediterranean skirting the congested Bosphorus, in 2007 after more than a decade of intermittent talks.

The agreement for the company which will construct the Burgas-Alexandroupolisoil transit pipeline was signed by Bulgaria during Russian President Putin’s visit to Bulgaria in 2008.

The 280-km pipeline, with 166 km passing through Bulgaria, would have an initial annual capacity of 35 million tons of crude oil, which could be later expanded to 50 million tons. Its costs are estimated at up to USD 1.5 B, up from initial estimates at USD 900 M.

The Trans-Balkan Pipeline company, which is in charge of the construction and subsequent operation of the future pipeline, and is headquartered in the Netherlands, was set up in 2008.

The Russian participant in the project, Pipeline Consortium Burgas-AlexandroupolisLtd, has a share of 51%. It was founded jointly by three companies: AK Transneft (33.34%), NK Rosneft (33.33%), and Gazrpom Neft (33.33%).

The Bulgarian Joint stock company “Project Company Oil Pipeline Burgas-Alexandroupolis – BG” AD has a share of 24.5%. It was initially founded as jointly by two state companies, Bulgargaz (50%) and Technoexportstroy (50%) but was transferred in full to the Finance Ministry in February 2010.

The Greek participants are Helpe Thraki AE with 23.5% and the Greek government with 1%. The Helpe-Thraki AE was founded jointly by “Hellenic Petroleum” (25%) and “Thraki” (75%).

Three Bulgarian Black Sea municipalities – Burgas, Pomorie, and Sozopol – have voted against the pipe in local referendums over environmental concerns.

Municipalities neighboring Pomorie and nearby Burgas are also harboring fears that the pipeline could damage their lucrative tourism business, while environmental NGOs have branded the existing plans to build an oil terminal out at sea a disaster waiting to happen.

Novinite: Russian Inter RAO Mulls Borrowing EUR 300 M to Buy Bulgarian TPP

Russian state-owned energy company Inter RAO considers to borrow EUR 300 M in order to buy the Bulgarian Maritsa East 3 Thermal Power Plant from theItalian Enel.

The money will be borrowed from the Russian Sberbank, Gazprombank and VTB, according to Bulgarian media. Inter RAO plans to buy 73% of the Thermal Power Plant.

However, experts have recently commented that the potential buyer is probably eying a 100% stake in the plant, in which the state owns a 27% stake. The rumors were fanned by a statement of Energy and Economy Minister Traicho Traikov, who recently announced that the state can land EUR 200 M from the sale of its stake in the plant.

US investment fund Contour Global was until recently considered the most probable buyer of for the 908 megawatt Maritsa East 3 coal-fired plant in Bulgaria, but it is facing funding problems, according to the Bulgarian Capital weekly.

Experts say Inter RAO‘s planned Bulgarian purchases fit in well with the strategy of the Russian company, which already owns GRES, the largest power station of Moldova, which exports electricity to Romania and Bulgaria.

In late July, Austria’s utility EVN, which already owns EVN Bulgaria, an electricitydistribution company in south and southeast Bulgaria, confirmed it is holding talks for the acquisition of a majority stake in the Maritsa East 3 coal-fired power plant.

British utility International Power, US power producer AES Corp. and CEZ AS are also said to have shown interest in acquiring Enel majority stake in Maritsa East 3.

A year ago Enel increased the capacity of Maritsa East Three plant to 908 megawatts, up from 840 MW, and also put new desulphurisation installations on the plant’s four units.

Should the Russian company acquire Enel‘s assets in Bulgaria, it will become of the biggest energy companies in the country, accounting for about 12% of itselectricity output.

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