David O'Byrne and Nicholas Watson -

At any other time over the past decade, a statement from a Turkish energy minister pledging Turkey's support for the Nabucco pipeline project designed to carry Caspian natural gas to Europe across Turkey would have been taken at face value. However, these are dark days for this heavily EU-backed project designed to reduce reliance on Russian energy supplies.

As an EU candidate state and a member of the consortium that will build Nabucco, Turkey has every incentive to support the EU's long-held plan to open up a third gas corridor that would bring non-Russian gas into Europe that bypasses Russian territory.

Slated to run the 3,300 kilometres from Turkey's eastern border with Georgia to Europe's main gas hub at Baumgarten in Austria, the 31bn cubic metre a year (cm/yr) Nabucco pipeline is not nearly big enough to replace Russia as a major supplier of gas to Europe. However, the consortium building it - which comprises Botas (Turkey), BEH (Bulgaria), Transgaz (Romania), Mol (Hungary), OMV (Austria) and RWE (Germany) - argue it would offer at least a vital alternative to Europe's growing dependence on imports of gas from Russia, which already supplies over 50% of the gas imported into the bloc. This is a position that Turkey, which already imports around 60% of its gas from Russia, is in every position to understand.

Yet comments by Turkish Energy Minister Taner Yildiz at a conference in the Georgian capital Tbilisi on January 21 together with two other pipeline announcements over the previous month show that Turkey is at best ambivalent about Nabucco's prospects of being built. "[Nabucco] must be part of the solution for European supply security. We are one of the six consortium partners and our efforts to realise this project are continuing," he said.

Commentators seized on his use of the phrase "part of the solution" - after all, it is less than a month since Turkey was party to two announcements on rival pipeline projects that between them promise to take both the gas Nabucco that hopes to carry and the markets it hopes to serve.

The death knell, say many observers, is being sounded for this expensive and overly ambitious political energy project, which changes in the energy markets and technology have been combining to make increasingly redundant since it was first mooted in 2002.

Crossing pipelines

Turkey and Azerbaijan chose Christmas Day to sign a memorandum for the creation of their jointly mooted Trans-Anatolian Pipeline (Tanap) - slated to use mostly existing Turkish infrastructure to carry up to 16bn cm/y of gas from the second phase of development of Azerbaijan's Shah Deniz gasfield as far as Turkey's European borders, from where buyers can transit it to the various European markets.

Then just two days later, Turkey and Russia signed an agreement to allow the construction of Gazprom's planned South Stream gas pipeline, slated to carry 63bn cm/yr of Russian gas through Turkey's sector of the Black Sea to Bulgaria and on via planned spurs to markets around Central and Eastern Europe. Construction of this pipeline, seen as Russia's counter to Nabucco, was then given a huge fillip by Gazprom's announcement in January that it has moved up the timetable to begin building this pipeline to this year.

The rationale behind Tanap is simple enough - it is a straight alternative to Nabucco, carrying the same gas and following the same route across Turkey, albeit with little capacity for expansion and halting at Turkey's western borders. Expected to cost far less than the €12bn-15bn that Nabucco is expected to run to, Tanap does at least fulfil the EU's long-held aim of providing a vital alternative to Russian gas and, like Nabucco, would open up the EU's cherished South European Gas Corridor.

South Stream on the other hand, with three-times the capacity of Nabucco, threatens to flood European markets with gas, lowering prices and making it difficult both for rival projects to sign up buyers in advance and to secure the financing needed for construction. And with most of the line running deep under the sea, it neatly avoids problems with transit countries such as Ukraine, with which Russia has long endured difficult relations due largely to Ukraine's insistence on Russia supplying cheap gas in return for transit to Europe. It's a strategy that Gazprom has already employed to good effect with the construction of its Nord Stream pipeline under the Baltic Sea, which began pumping 27.5bn cm/y of Russian gas in 2011.

Gazprom also appears to have managed to lure away from Nabucco Germany's RWE, which would've been one of the largest end-users of the gas from that pipeline. RWE CEO Jurgen Grossmann said in an interview with Dow Jones in January that his loss-making firm is considering scrapping its plans to participate in Nabucco. Says Andrew Neff of IHS Global Insight: "A potential withdrawal by RWE from the Nabucco consortium would not necessarily be the end of the pipeline project, but it could trigger a rush for the door by other shareholders, as Nabucco appears more and more to be a sinking ship."

Neff says that barring Azerbaijan making a quick and definitive decision to supply its gas to Nabucco, "the pipeline now appears destined to be scrapped." Such a decision from Azerbaijan seems unlikely, though, given that its national oil company Socar has delayed again choosing its preferred gas export route for the gas from the second phase of Shah Deniz until at least the end of March, all the while it and Turkey's Botas are proceeding full-speed ahead on Tanap. "[This] strongly suggests that Nabucco is virtually out of the running now in the southern corridor pipeline race," says Neff.

What is less obvious is how signing off on South Stream benefits Turkey, which hopes to cement its role as a major gas corridor into Europe with either Nabucco or its own Tanap project.

According to Turkish energy analyst and member of the World Energy Council Turkish National Committee, Necdet Pamir, Turkey's simultaneous support for the two projects doesn't reflect any grand strategy. "The details of Tanap haven't been announced yet, but it seems to offer Turkey and Azerbaijan some advantages that Nabucco doesn't," he says, pointing out that as well as guaranteeing to send 10bn cm/yr to Europe, the project allows for Turkey to take 6bn cm of Azeri gas, some of which will be used as feedstock by Turkey's only petrochemical plant, now owned by Socar.

Turkey's support for South Stream, however, stems from a far different cause. Pamir points to one of Turkey's three existing gas import contracts with Russia, through which it takes 6bn cm/yr via the Trans-Balkan pipeline, most of which supplies gas consumers and power plants in Turkey's biggest city Istanbul. That contract expired on December 31, with Gazprom wanting Turkey to extend the existing agreement unchanged and Turkey preferring to instead transfer it to the private sector in line with plans to liberalise its gas market according to EU rules. "They knew Turkey was in a weak position, and squeezed," says Pamir, pointing out the risks of failing to reach an agreement with Gazprom during the coldest part of winter - namely similar to what happened in January 2009 when a gas dispute between Russia and Ukraine saw gas supplies cut off to much of Europe.

Ironically, these are precisely the same risks that the Nabucco pipeline project was supposed to have mitigated.

Turning on the TAP

With the curtain coming down on Nabucco (named after the Verdi opera), the two pipelines that had been bidding against it to bring the Azeri gas to Europe have had new life breathed into them.

Nabucco was the only project providing transport of the Azeri gas all the way from Turkey's eastern border into the heart of Europe. The problem with the two competing pipelines - the Interconnector Turkey-Greece-Italy (ITGI) and the Trans-Adriatic Pipeline (TAP) - was that they both relied on the antiquated pipeline infrastructure of Turkey to get the Azeri gas to where their pipelines picked up the route. Turkey and Azerbaijan's Tanap pipeline solves that.

ITGI has approximately 1,700 km of the overall 2,500 km of pipeline already built. Missing is a 207-km offshore section - the Poseidon Pipeline - linking the Italian and Greek gas networks across the Ionian Sea, which is under development by Italy's Edison and Greece's Depa through the consortium IGI Poseidon. This will have a capacity of 8bn cm/y and cost around $1.5bn.

TAP, being built by a consortium of Statoil, E.On and EGL, will actually require the shortest pipeline to be built, just a 520-km long section with a 10bn cm/y capacity that will transport gas via Greece and Albania and across the Adriatic Sea to Italy's southern Puglia region. The cost of the project is approximately $2bn.

TAP had been the only project out of the three that has one of the members of the Shah Deniz producing consortium in its shareholder structure, Statoil with a 42.5% stake. However, BP, which is the operator of the Shah Deniz consortium has entered the fray with its unveiling in September of the South East Europe Pipeline (Seep), which would run from eastern Turkey to the Baumgarten hub in Austria. "BP's Seep proposal has gone from dark horse to frontrunner in the past three and a half months since it was first mooted," says Neff.

Nabucco may be dead, but the pipeline battle goes on.