Graham Stack in Kyiv -

Taken together, EU financial support for interconnecting emerging Europe's gas network combined with the prospect of liquefied natural gas (LNG) shipments of Azeri gas arriving in Romania via Georgia could see Romania turning into a gas transit hub before you can say "Nabucco." However, claims that these plans could replace that EU-backed pipeline are arguably overblown.

Two separate developments came together in early 2010 that could see Romania develop as a gas transit hub before the ongoing battle between two competing gas pipeline projects, Nabucco versus Russia's South Stream, is decided.

Firstly, Romania, Georgia and Azerbaijan signed a memorandum in Bucharest on April 13 for gas transport through the Azerbaijan-Georgia-Romania-Interconnection project, known as Agri. Romania's economy minister, Adriean Videanu, told newswires the plan could be finished before the EU-backed Nabucco project to pipe Caspian basin gas to Europe via Turkey is completed sometime after 2015.

The gas produced will be transported by pipeline to Georgia, liquefied or compressed, and then shipped to Romania for domestic use or onward to other EU countries. According to earlier statements by Romanian Energy Minister Tudor Serban, the project could handle 3bn-8bn cubic metres of gas per year (cm/y), and would cost €4bn-6bn to build. Romania's Transgaz Medias and Azerbaijan's Socar, plus a Georgian company, would implement the project.

Secondly, the EU finalised plans to increase the linkages between individual gas transportation networks of member countries to reduce energy risks by making it possible to supply one market with another. Gunther Oettinger, European commissioner for energy, announced on March 5 that funding for a whole string of related projects, including interconnectors to be built between Romania, Hungary and Bulgaria. Romania currently lacks any export capacity for gas to Central Europe, so the EU plan is to build an interconnector from Romania's Arad to Hungary's Szeged that would provide new options for transiting gas. "In three to four years, Romania will be sending gas all the way to Austria," Serban was quoted by Ziarul Financiar as saying. "The project with Azerbaijan and Georgia could be completed quicker than Nabucco."

First steps

Romania energy specialists see these plans - basically a downscaled version of the "White Stream" plan for Black Sea gas pipeline bringing Azerbaijani gas to Europe - as the first steps towards Romania becoming Europe's southern gas transit hub. According to Jean Constantinescu, former head of the power sector regulatory body and of Transelectrica, the national distribution network operator, and current president of the Romanian Institute for Energy Development Studies (IRE), "In my opinion, the new connections to Hungary and Bulgaria are the first steps only."

"Gas suppliers know that Romania is a particular candidate for a regional gas hub on the so-called 'Southern Gas Corridor,'" he explains to bne. "Its strong points relate to existing gas infrastructure, the largest in the region, and to huge potential for gas storage facilities including depleted gas deposits. Gas storage in Romania, as for instance at the Margineni facility, can protect against problems in Ukraine and elsewhere."

Constaninescu also agrees with Serban that the project will be implemented "most likely in advance of Nabucco commissioning."

Aureliu Leca, a Romanian energy secretary in the early 1990s, tells bne he sees "a big question mark" hanging over the hugely costly and complicated Nabucco project. "The recent discussions between Azerbaijan, Georgia and Romania are supported by the fact that Romania has over 100 years experience with natural gas, and a developed, if dilapidated, interior network, and considerable existing underground storage capacities, and a number of potential sites we have identified," Leca says. "This is a project on the government agenda, and it seems the only economic way of getting Caspian gas. LNG would be more expensive than gas from Nabucco, but it is more realistic."

International experts are, however, more sceptical about the significance of the project. The volume - a maximum of 8bn cm/y - is small compared with the Nabucco pipeline's proposed 31bn cm/y. They argue that Azerbaijan's interest in the project may be more tactical than strategic; the country is in a diplomatic spat with Turkey over the latter's US-backed rapprochement with Armenia, and due to Turkish overtures to Iran as potential gas supplier. Moreover, Azerbaijan wants higher prices for the gas it sells to Turkey. The threat of cutting Turkey out of the Caspian transit route provides leverage in all these questions.

Independent energy analyst Andrea Bonzanni argues projects like Romania's are not a competitor of Nabucco, but "are just conceived as a back-up choice in the case Nabucco fails and, most importantly, a bargaining chip to show transit and receiving countries, as well as the companies involved in the venture, that Azerbaijan has alternatives to Nabucco and therefore its participation has to be well-rewarded."

"Nabucco is expected to be operational by 2015, but the timeframe is highly uncertain due to the lack of upstream suppliers and financing," says Bonzanni. "State-of-the-art technology can indeed guarantee supplies of LNG within a shorter time, but I doubt any of the parties involved will push hard for a rapid conclusion of this venture," says Bonzanni.

Moreover, Romania is not the only country hatching similar plans. Azerbaijan recently agreed on a similar smaller project to ship 1bn of compressed natural gas to Bulgaria. "Undoubtedly, Romania aims at becoming a hub for the European gas market in order to solve its problems of energy security and gain regional leverage. These projects are, however, shared by several countries in Southeastern Europe and Turkey or Bulgaria, with South Stream and/or Nabucco, definitely better candidates for this role," says Bonzanni.

If you can't beat'em

Adding to the confusion are recent talks between Russia and Romania's national gas company Romgaz about the latter participating in the Russian South Stream project to move Russian gas under the Black Sea through the Balkans and on to Italy. And further complicating matters, Paolo Scaroni, CEO of Italian energy giant Eni, Gazprom's partner in the South Stream project, was quoted on March 12 as proposing a merger of the rival projects Nabucco and South Stream for part of the route: "We would reduce investments, operational costs and increase overall returns."

The LNG project definitely adds to doubts about Nabucco, the viability of which is being questioned due to the geopolitical risks it is exposed to in terms of sourcing supplies and securing their transit. These risks range from the recently announced Turkmenistan-China pipeline, to increasing US-Iran tension, the many ramifications of the Armenia-Azerbaijan conflict, and the surge in extraction of unconventional (shale) gas. Such doubts produce a vicious circle, since weakening resolve on the part of any one participant weakens the willingness of others to commit unconditionally. This means that, despite the EU's unflagging enthusiasm, the project might still die the death of a thousand doubts.

But speaking April 16 to Kyiv students and journalists, Nabucco's adviser/lobbyist, former German foreign minister Joschka Fischer, was his usual rambunctious self: "South Stream would go through the deep waters of the Black Sea, and I do not see it being built." Asked from where Nabucco would get its gas, he named the Caucasus, Central Asia, North Iraq, "...and even further south."