Tag Archives: ITGI

The Emergence of an EU Gas Strategy?

The emergence of an effective European gas strategy may be close to being realized. After years of deliberation and allowing private companies and member states to take the lead, the ‘new’ EU Commissioner for  Energy Günther Oettinger appears to be butting the heads of companies and governments. This strategy appears in three areas 1) pursuing third country clauses which denies the right to re-export Gazprom supplied gas to other member states (Poland-Gazprom), 2) political support behind the North-South gas corridor in Central Eastern Europe, and 3) most significantly of all, the effort to get European companies cooperating on the southern gas corridor traversing Turkey.

Commissioner Oettinger, when he joined the Commission, was derided as a vanilla kind of guy, even the US in cables released by Wikileaks describes him as  bland. Well, the thing with vanilla is it just takes a little chocolate to liven it up (ok, I couldn’t think of a better comparison than that). He may be a boring guy (according to these reports) but he may be emerging as an effective and pointed leader that can bridge the fundamental divide in the energy sector. Openly stating, “South Stream can, in the long term, be considered a rival to the Nabucco project,” Unifying the strategies and actions of the political establishment with the capital investments of the private companies. This is absolutely essential if Europe is going to diversify its gas sources, through private effort.

There are two notable events that demonstrate this effort of realizing the southern corridor. The recent Oettinger’s statement telling the project companies to get moving  and encouraging  cooperation between the two consortia that comprise Nabucco and ITGI. A gradual and sustained investment approach – without Russian involvement, appears to be emerging as the solution for transporting Central Asian and gas from the Caucuses to Europe. This approach is absolutely essential if the Commission and member states want to exclude Russian participation in the pipeline from this region.

Russia and Gazprom has been pressuring the Commission and member states to grant South Stream priority status, so that it can have access to lower financing cost and receive similar backing as Nord Stream. The lack of it to date, is indicative that the EU wants a non-Russian gas pipeline project.

In June 2010, the Russians announced that EDF would be joining their consortium, only a memorandum of understanding was signed, full partnership still has not happened. The Russian strategy is to come out with frequent political agreements and big statements to demonstrate that their project is moving ahead and is in step with Nabucco. However, if the merger with ITGI and a less ambitious and lower cost Nabucco emerges (at least in the short term), it will have a very hard time to keep up with the European backed project. Financing, access to gas (non-Russian) and continued commitment by member countries (i.e. state owned energy firms) will all work to drag South Stream into the morose of pipeline project graveyard.

In the end it may be a slow death for South Stream because it is not in the financial interest of member states to participate in two large pipeline projects. Essentially what countries have done, is to hedge their bets on which pipeline is built first. This has also allowed them to maintain good relations with Russia – but the day of reckoning has to come sometime. If all South Stream does is redirect Ukrainian transiting gas thorough the southern corridor, it will be a very expensive detour.

The EU energy strategy launched in 2009, and outlined in the second strategic energy review, along with the events and the awakening of the January 2009 Russia-Ukraine gas dispute, have all played a part in seeking ways to increase  Eastern Europe’s security of gas supply. LNG is a viable option. It remains to be seen if the CEE/SEE region can support all the planned projects on the table. These include 3 to 4 LNG facilities plus, Nabucco along with existing gas pipleline routes – in addition to large planned capacity of South Stream. In the Southern Gas Corridor survey conducted in November and December 2010 by this blog, respondents stated that the most favorable configuration would be Nabucco and two LNG facilities (I’m still working to get all the results out – sorry for the delay)

(source: Limax Energy Consulting/energyscee.com)

The ability to bridge the political and corporate divide in realizing energy projects is a main component to successful energy policy. Whether this is the promotion of competitive markets, or the effort to reduce carbon emissions, in the mix of the energy sector public-private cooperation is essential for increasing energy security of supply. The efforts of Commissioner Oettinger, go far in walking the fine line of working both within the legal parameters of his institution, and the more informal role of prompting, even egging on, the private sector to do more. Europe’s ability to diversify its gas supply rests on this cooperative relationship. It is nice to see the many components of Europe’s energy strategy fall in line. Now, let’s just wait for the next big announcement from Gazprom and how they plan to match Nabucco’s slimming down. Maybe after hibernating all winter the Russian bear will also shed a few pounds.

[postscript: after writing this the Nabucco consortium came out and flatly denied any cooperation with ITGI – from what I understand, even on the Nabucco side, there remains room for cooperation, so this shouldn’t be written off just yet]