Is the Nabucco Pipeline Worth Investing In?
The $11.4 billion project could have trouble getting on its feet.
Inside Beltwayistan, a number of Bushevik oil patch zombies still roam the recession-blasted landscape mindlessly chanting their Caspian mantra: "Happiness is multiple pipelines" -- with the caveat that they flow westward and bypass both Russia and Iran. They've now added a new word to their vocabulary, "Nabucco," and worse, have bitten a number of President Barack Obama's administration officials and visiting European politicians who have joined their shuffling ranks.
Their thinking remains somewhat clouded by primordial memories of former President George Bush's "fuzzy math," as the statistics about Nabucco are contradictory, to say the least.
State Oil Company of the Azerbaijani Republic (SOCAR) Vice President Elshad Nasirov is now threatening to start selling Azerbaijan's natural gas, currently Nabucco's sole projected provider of throughput, to Asian countries if Europe further postpones Nabucco's construction.
Construction of the 56-inch, 2,050-mile pipeline, first proposed in 2002, is tentatively slated to begin next year and scheduled for completion by 2014. At a cost initially estimated at $11.4 billion and rising, Nabucco will be the most expensive pipeline ever built, more than three times the cost of the 1,092-mile Baku-Tbilisi-Ceyhan (BTC) oil pipeline. Raising such a significant sum in a time of global recession would be an article of faith at best.
Even assuming that Nabucco's boosters manage to assemble a coterie of deep-pocketed investors, the only promised current volume for Nabucco's proposed 31 billion cubic meters (bcm) annual throughput is Azerbaijan's future offshore Caspian Shah Deniz production, estimated at eight bcm.
Even if Shah Deniz does end up supplying Nabucco, its currently promised throughput leaves a deficit of 23 bcm, leaving us to wonder whose natural gas will Nabucco carry if SOCAR drops out, a worst-case scenario requiring the Nabucco consortium to scrounge all 31 bcm per annum, especially as Washington's geopolitics invalidate the participation of either Russia or Iran.
For those with knowledge of energy history in the post-Soviet space, the 419-mile, $500 million Odessa-Brody oil pipeline, completed in 2001, provides a cautionary tale to building pipelines without throughput guarantees.
The Ukrainian government rashly built the self-financed line without foreign investment, stretching from its Black Sea port to the Polish border to provide Central Europe with oil despite not having firm commitments from a single oil producing nation for export throughputs.
After the pipeline remained unused for three years, a reluctant Kiev was forced in 2004 to agree to transport Russian oil southward in the opposite direction, for export from Odessa rather than northward to Central European markets as originally envisaged.
Further complicating the picture are the differing proposed transit and pricing policies of the countries that Nabucco will pass through.
The biggest geographical hurdle impacting the bottom line is the fact that, if as some Nabucco boosters aver, Turkmenistan can be persuaded to contribute natural gas, the seabed of the Caspian has yet to definitively be delineated among the sea's five riparian states.
The question remains unresolved 18 years after the implosion of the USSR dashed the 1920 and 1941 Soviet-Iranian bilateral treaties covering the issue of offshore waters.
Building a pipeline across seabed whose ownership is in dispute will enrich maritime lawyers, but few others.
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