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The Southeastern Europe Pipeline Race

Ioannis Michaletos, October 6, 2011

The geo-economic landscape in Southeastern Europe, as in other regions in the world presently, is being shaped to a great extent by the competition between numerous energy-producing states, large consumers and multinational corporations all vying to control the bulk of the energy-transport systems, most importantly pipelines. The European Union has formed a strategy called Southern Corridor, relating to the formation of a pipeline that will diversify the supplies of natural gas for E.U. states that currently rely on Russia and Algeria. The plan attracts the attention of all global energy corporations that aim for long-term lucrative contracts, and at the same time countries that have vital interests in the global energy sector are involved in the plannings, by backing up projects that they can influence. The target is to control the energy flow so as to gain political and diplomatic clout.

New players

 
Recently, the company British Petroleum entered the game by announcing its planning for the Southern Corridor, which it names South East Europe Pipeline (SEEP). According to press announcements and statements from officials, the pipeline will transfer gas from the Caspian region through Turkey, Bulgaria and Romania, onwards to the energy-thirsty industrialized nations of central and northern Europe, where some 150 million consumers are located and major global companies such as BMW, Daimler, Siemens, Airbus, Thyssen and others have their production facilities.
 
BP's planning is directly competitive with the Nabucco pipeline, which aims to follow the same route and exploit the same energy resources, although its shareholders are mostly German, Turkish and Austrian companies. Apart from the obvious economic competition, the two pipelines share an antagonism that is reminiscent of the Belle Époque era, when the energy-seeking British and German Empires contested ferociously over oil reserves from the Danube to the Middle East. The victory of the Brits secured global economic predominance for the Anglo-Saxon companies up to date.
 
BP manages the vast and Azeri gas field of Shakh Deniz together with the Norwegian Statoil, a company that has its own plans for the Southern Corridor by participating in the Trans-Adriatic Pipeline project, known as TAP. BP's move indicates that these two companies, since they have a joint venture in a field that can potentially secure gas supplies to Europe, may decide to merge their respective plans in the near future.
 
Moreover, BP as a corporate entity has been seriously battered due to the Mexican Gulf offshore drilling disaster in 2010 and the failure of negotiations with the Russian government relating to acquiring rights to the Arctic Sea reserves. These two failures have cost the company dearly in terms of shareholder value. Thus the London-based energy giant is playing perhaps a last grand move in order to stay on top of a highly volatile and changing market and at the same time secure a mega energy project of direct geopolitical implications that may well lead into a renewed antagonism between the ailing British corporate power and that of the European Union, which is based upon German and French companies.
 
BP, in order to antagonize Nabucco, promises to offer a project costing a third of that of the other pipeline, since it will transfer initially much smaller quantities. Purely financially speaking, that plan seems promising; nevertheless there are other antagonizing routes to be considered that are also gathering pace.
 
The rest of the plans
 
The Interconnector Turkey-Italy-Greece is another project that is backed by companies of the respective countries and aims at the same target, meaning the exportation of Azeri gas to Europe of approximately 12 billion cubic meters per year. The Azeri state energy company SOCAR stated recently that is in negotiations with Turkey in order to finish up details for that project, the most important one being the agreement upon the transit fees of the latter. Should these negotiations prove to be fruitful, ITGI can be put into action by 2013, thus surpassing all of its competitors. In short, the Azeri government is being seen as a precious bride by all interested parties who rely on their future plans.
 
Within the last three months of 2011, SOCAR will review all plans by Nabucco, ITGI, TAP and SEEP, and it is estimated that it will then decide which will be given the green light to move on. That makes Azerbaijan presently the most focal country for geo-energy affairs in the world, because all interested parties know very well that the winner takes (almost) all and will leave precious little quantity of gas for its competitors to export. The estimation by many independent energy analysts is that a final decision will be ultimately postponed for 2012 or even further in the future and that mergers will take place between those four pipeline projects, depending on the national interests of the four countries with high stakes in that field, namely the United States, Germany, the United Kingdom and France.
 
The Russian factor
 
A crucial aspect of the pipeline discussion is the role of the Russian-Italian-backed plan of the South Stream pipeline, which recently admitted new shareholders from Germany and France. It is the only project that is not related to Azerbaijan or Turkmenistan and other Caspian states, and aims to deliver gas to Europe via a different avenue and coming from the Russian and possibly Kazakh reserves. Estimations to date, along with various reliable data, point out that Azerbaijan is not able to provide a full load of the gas needed for the Southern Corridor. Moreover, insoluble legal barriers on the status of the Caspian Sea and current disagreements between all neighboring states for the offshore gas fields are major obstacle for a long-term pipeline-related decision. The obstacles may prohibit any future plans to connect Turkmenistan reserves for export with those of Azerbaijan, since any pipeline will have to trespass the bottom of the Caspian Sea.
 
It seems that the South Stream, since it is backed by 50 percent shares by Gazprom, which is essentially a state-owned and -run Russian company, can secure the capital needed for a long-term massive investment of up to 16 billion euros, whereas other plans such as Nabucco, where quite a few mid-sized private companies participate, will find difficulty raising capital and making a profit. In any case, the existence of a Russian plan backed by several big European energy players reveals that there is a long way before any pipeline is being constructed amid a ferocious interstate and corporate antagonism.
 
Estimations
 
The gas share in the European Union's energy balance will continue to grow in the coming decades against the background of the negative attitudes of Europeans against nuclear energy, as was manifested in Germany and Switzerland, and the desire to reduce carbon emissions. For the moment, the only important project aiming for the above strategy is the North Stream, a joint German-Russian venture, which begins commercial operations the last weeks of 2011, manages to secure stable gas deliveries in Europe, and solves to an extent the issue of energy supply in the European Union in anticipation of winter.
 
Concerning the Southern Corridor, the markets under which gas can be secured and exported are Azerbaijan, Turkmenistan, Russia-Kazakhstan, Iraq and Iran. It is not clear whether Azerbaijan has the necessary capability of delivering over 1 trillion cubic meters of the product for the next 35 years—a median life span of such a project. Turkmenistan faces the legal barrier of the Caspian Sea and the all-encompassing political-diplomatic influence of Moscow. Russia-Kazakhstan does have the necessary amounts, but as far as Russia is concerned, it will certainly face political opposition. Iraq is still in a state of flux and nobody can guarantee a safe passage of large amounts of gas through the Kurdish-controlled territories where, in the case of those in Turkey, a vicious guerrilla war is being fought. Iran, lastly, is marginalized by the international community due to its involvement in its nuclear program and its support to international terrorist groups.
 
The only certainty is that the pipeline competition in Southeastern Europe is far from over, and last-minute surprises, such as new players entering the game, remain a possibility. Most importantly, the issue far exceeds the little publicity it gets from mainstream international media, and it is at the top of the agenda of most global policymakers, making it of historic nature and of binding long-term political consequences for a significant part of the Southern Eurasian mass.

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