A Decline In European Gas Import Projections Puts Big Projects In Doubt.
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There is a glut for natural gas in the US market as a result of many shale gas discoveries and their rapid development. Consequently, major volumes of LNG originally developed for the US market are being diverted to Europe and other parts of the world (see omt19TurkTradeMay10-10).
This factor, combined with energy efficiency and a shift to other alternative sources of fuel, will add to the uncertainty hanging over the shape of Europe's future market for natural gas. Plans to transform the Mediterranean into a grid of gas pipelines with Italy as the main hub risk languishing on the drawing board.
One major element of uncertainty is the consequence of Europe's shift to renewables and energy efficiency efforts. It is estimated at, even if only half of the EU objectives to 2020 are realised, EU's gas needs would be reduced by over 135 BCM/year - equal to what several European countries imported in 1990.
Sunshine has been the life-blood of the Mediterranean and Arab Gulf (GCC) economies, and the solar power industry is expanding, especially in Spain and Portugal. One of the most ambitious solar projects at the moment is in North Africa. The Desertec Industrial Initiative is a plan to build a vast network of solar power plants and wind farms, covering the North African and parts of the sub-Saharan deserts which stretch for thousands of miles, and connected to an advanced electricity grid which will carry power generated around or under the Mediterranean Sea to feed Europe.
Yet in parallel, the GCC states have a similar project in mind. While Abu Dhabi is in the lead with its huge Masdar programme of projects as well as a $40bn plan for four 1,400MW nuclear power plants to be built by a South Korean consortium, Saudi Arabia's desert has almost the size of West Europe and can potentially become the main source of solar power for much of Europe and some markets east of Suez and African countries. Saudi Arabia and the other five GCC states are all seriously considering the nuclear option as well.
Unlike the North African countries which face Islamic militancy and some of them are short of cash, the GCC region is financially super-rich and can link up with Europe through Turkey and the Mediterranean. A combination of major Middle East gas pipelines to Europe via Turkey and electricity lines could make the GCC region a bigger exporter of clean energy than North Africa. Qatar which has the world's third largest reserve of natural gas is promoting a huge pipeline to Europe to run via Saudi Arabia, Jordan, Syria and Turkey. There are advanced talks for gas to be exported from Iraq to Europe through Turkey.
Suddenly, there is too much gas from the Middle East, the Caspian region and Russia competing for the European market. There are several projects to have natural gas pipelines reach the European market through Turkey. They are in the following order of importance relative to the EU and the US:
Nabucco Gas Pipeline International GmbH. This is a Vienna-based JV company, with the pipeline estimated to cost 7.9bn, owned equally (almost 16.67%) by OMV of Austria, MOL of Hungary, Bulgargaz of Bulgaria, TransGaz of Romania, BOTA? of Turkey, and RWE of Germany. The Inter-Governmental Agreement for this project - to carry 31 BCM/year of natural gas through Turkey from the Caspian and the Middle East region to central Europe, was signed in Ankara on July 13, 2009.
The six partner-companies will invest 30% of the project's total cost, with the remaining 70% to be debt-financed through loans from international banks. The next step was to be the start of "open season" involving accepting applications to fill the pipeline in the first half of 2010. A final investment decision on the project is expected to be made in the fourth quarter of 2010. Construction of the pipeline is to begin in late 2011 and to be completed in 2014. The first phase of the pipeline's capacity will be between 8-10 BCM/year and timing for completion of the final 31 BCM/year phase will depend on the availability of firm gas suppliers.
Nabucco competes directly with the South Stream gas pipeline from Russia to south and central European countries. The main partners in this project, estimated to cost 17.5bn), are Gazprom and the ENI group of Italy. Electricite de France (EDF) is a partner, with OMV discussing possible participation with Gazprom. South Sream's capacity has been set at 31 BCM/year in the first phase and this should eventually rise to 63 BCM/year in the final phase.
The gas producing countries offering in principle to supply Nabucco are Azerbaijan (from the offshore Caspian Shah Deniz gas field), which has offered to provide up to 5 BCM/year in the first phase; Egypt (from a pipeline already built via Jordan and Syria, with an extension from Syria to Turkey to be ready later in 2010, offering to provide up to 3 BCM/year; Iraq's Kurdistan Regional Government (KRG), offering 3.5 BCM/year - or a combination of the KRG and the central government of Iraq both offering to provide a combined 7 BCM/year, with Baghdad to provide 3.5 BCM/year from the Akkas gas field which lies in Anbar Province near the Syrian border - with US Vice-President Joe Biden having proposed for the pipeline to run from Akkas northward to Kurdistan where the gas will be mixed with Kurdistan's stream of 3.5 BCM/year and pumped to Nabucco in Turkey through a pipeline to be built from the Kurdistan-Turkish border; Iran, offering to provide between 20-30 BCM/year in a pipeline to run through Anbar on to Syria and from there to Turkey (this means linking up with Akkas whose gas will be piped to Syria, instead of to Kurdistan - so that the KRG will separately pump its gas to Nabucco in Turkey); and Qatar, offering between 20-30 BCM/year with its gas to run through Saudi Arabia, Jordan, Syria and Turkey - according to preliminary 2009 agreements between Qatari Emir Shaikh Hamad bin Khalifa al-Thani and Turkish President Abdullah Gul and Prime Minister Recep Tayyip Erdo?an.
The government of Azerbaijan still has not made any firm commitment to provide the gas from Shah Deniz, in view of a firm offer made by Gazprom to buy all of Shah Deniz's gas production at international market prices. The KRG already in 2009 signed a preliminary agreement with Dana Gas (a unit of the Sharjah-based private oil company Crescent Petroleum, which is owned by Iraqi-born oil businessman Hamid Ja'far (Dana Gas, which operates in Kurdistan has found the major gas fields which will supply Kurdistan as well as Nabucco). The same agreement was also signed by OMV and MOL.
The Baghdad government is still hesitating on a final decision, having to choose between VP Biden's proposal for Akkas gas to be piped to Kurdistan and then on to Turkey for Nabucco, and an Iran/Syria-backed proposal for Akkas gas to run to Syria and Turkey along with a pipeline from Iran via Iraq (Anbar) and Syria on to Turkey.