The Economist has an article on another stumble forward for the Nabucco gas pipleine, which I've long believed will end up transporting Iraqi gas (as opposed to Iraqi oil) to Europe - He who pays for the pipelines calls the tune.

TRAGEDY and farce have too often been the hallmarks of European efforts to improve energy security. Dependence on Russia, which supplied a third of its gas imports through Kremlin-controlled east-west pipelines, seemed to be rising inexorably and worryingly. Squabbling between Russia and Ukraine led to repeated supply cuts. The Russians exploited energy to divide and rule their Western neighbours. Big energy companies in countries such as Germany and Austria sought cosy relations with Russia’s state-controlled gas giant, Gazprom.

The overlap between politics and profit was epitomised by Gerhard Schröder, a former German chancellor. Since 2005 he has been the front man for Nord Stream, the pipeline that is planned to run under the Baltic. Along with South Stream, a sister project across the Black Sea, Nord Stream would let Russia bypass troublesome transit countries, chiefly Ukraine. West European customers could benefit, but the plans alarm countries in the east that are at greater risk of Russian bullying.

Now this gloomy picture is brightening. For a start, Europe has diversified its sources of supply: cost and unreliability have led Gazprom to lose a third of its European market to imports from Norway, Qatar and Trinidad, says Mikhail Korchemkin of East European Gas Analysis, a consultancy. Second, one of the European Union’s efforts to curb Russia’s transit monopoly is gaining traction. In a signing ceremony in Ankara on July 13th, the Nabucco pipeline, which will connect Europe to gas-rich Central Asia via the Balkans, Turkey and the Caucasus, won formal backing from the main transit countries: Austria, Hungary, Romania, Bulgaria and Turkey, as well as from Germany.

This step reflects a €200m ($283m) dollop of EU money, plus some political shifts. Turkey had earlier bargained toughly (some said destructively). The EU’s quiet expression of interest earlier this year in White Stream, a rival project across the Black Sea, may have changed Turkish minds. And Nabucco has hired Joschka Fischer, a former German foreign minister, as a consultant (see article).

Nabucco could carry some 30 billion cubic metres of gas a year. But that is only a fifth of what Russia exports to Europe; and it will not be finished until at least 2015. Moreover, the sources of that gas remain unclear. Azerbaijan has enough only for the project’s early stages, though it is exploiting new offshore gasfields. Iran would be a logical supplier, but is out of the question on political grounds. A promising newcomer is Iraq’s Kurdish region. In May a Western-backed consortium unveiled an $8 billion plan to extract gas there and sell it to Nabucco. This week Nouri al-Maliki, Iraq’s prime minister, said he could supply half the gas the pipeline needed.

But the biggest prize would be gas from Turkmenistan, a Central Asian dictatorship that claims to sit atop one of the world’s largest gas reserves. The Turkmen leadership is hesitant about annoying the Kremlin, which now buys all of the country’s exports to make up for Russia’s own flagging gas production. But an EU-backed negotiating consortium has made some progress in talks with Turkmenistan. President Gurbanguly Berdymukhammedov recently announced that his country had a surplus of natural gas “available to foreign customers, including Nabucco”.

That would, however, require a new pipeline under the Caspian Sea, which would not only be costly and slow but also subject to objections from Russia and Iran (which would like to offer a land-based route instead). Russia is the only serious naval power in the Caspian. It showed in last August’s war with Georgia that it is prepared to use military force to protect its interests in the neighbourhood.

An American delegation, including Barack Obama’s national security adviser on the region, Michael McFaul, has just been to Turkmenistan to stress the importance the West puts on making Nabucco a success. American lobbying proved crucial to the success of the Baku-Tbilisi-Ceyhan oil pipeline that runs from Azerbaijan to Turkey’s Mediterranean coast, which opened in 2005. Many thought that was a pipe dream in the beginning, but with strong political backing it came to acquire an aura of inevitability. Nabucco’s backers hope to repeat the BTC pipeline’s trick.

Other less ambitious pipelines are also moving ahead. ITGI, which aims to bring Azeri gas to Italy via Turkey and Greece, has just announced a deal to extend a spur north to Bulgaria, ending that country’s near-total reliance on Russian gas. Another EU-backed scheme, the Trans-Adriatic Pipeline, has signed up gas from Iran and expects to draw on Azerbaijan too.

The SMH reports that Russian gas exports via the Ukraine have been blocked yet again - Europe gas halted as Russia-Ukraine deal falters.

Russia's natural gas supplies bound for a freezing Europe were halted again on Tuesday only a few hours after a truce had been announced in its "gas war" with Ukraine. The Gazprom energy giant accused Ukraine of blocking gas bound for Europe, while Ukraine blamed "unacceptable" technical conditions imposed by Russia.

The breakdown again infuriated the European Union as hundreds of thousands of people shivered in the depth of winter and factories and schools remained closed in many countries.

European Commission chief Jose Manuel Barroso telephoned Russian Prime Minister Vladimir Putin, to express the "EU's disappointment" at the new hurdles.

"Ukraine has blocked all our actions in respect of renewal of the transit of natural gas through Ukraine, which is unbelievable," said Gazprom's deputy chief executive Alexander Medvedev. "In these circumstances we again don't have the physical possibility to transit gas to European customers and the whole responsibility for this lies on the Ukrainian side," he added.

The ABC reports that Gazprom is accusing the Ukrainians of being American puppets - Gazprom accuses Ukraine of being 'US puppet'.

Russian state-controlled gas behemoth, Gazprom, has accused the United States of orchestrating the Ukraine's actions in the gas dispute that has left Europe with gas shortages. Russia started pumping transit gas destined for European consumers into the Ukraine earlier today for the first time since transit supplies were halted on January 8.

"We believed yesterday that the door for Russian gas was open but again it's been blocked by the Ukrainians," Gazprom deputy chief executive Alexander Medvedev said on a conference call with reporters. "It looks like... they are dancing to the music which is being orchestrated not in Kiev but outside the country."

Mr Medvedev said he was referring to an agreement signed between the Ukraine and the United States. He did not name the agreement.

The Times reports that British gas reserves have fallen to less than a week’s supply of UK consumption - Britain close to low gas alert.

BRITAIN’S gas network operator is on the verge of issuing an emergency alert that could lead to cuts for industrial users and potentially affect Ireland, which takes 90% of its supply from Britain.

The National Grid in Britain said it could issue the “gas balancing alert” in the next two to three days because reserves had fallen to less than a week’s supply of UK needs.

Suppliers were forced to dip into reserves last week after energy companies began siphoning gas out of Britain to supply other parts of Europe.

Bord Gais said on Wednesday that consumption had reached a two-year high due to cold weather but it would take months before the row between Russia and Ukraine would cause a shortage in Ireland.

“The conflict would have to run into months before it would be a problem for Britain and Ireland,” said John Mullins, the Bord Gais chief executive.

Jerome a Paris ha an update of his regular series of posts on the topic at The Oil Drum - Gas crisis: Is Gazprom really expecting Europe to take its side against Ukraine?

It looks to me that Gazprom seems to be thinking that it had successfully managed to put the blame for the conflict on the Ukrainians, and was trying to push its advantage and finally separate the issue of payment for gas delivered to Ukraine from that of the transit of gas (thanks to the European monitors enlisted to put the blame on Ukraine for blocking further gas deliveries).

But it looks like we're back to square one: the Ukrainians will not accept to pay for the portion of the gas delivered by Gazprom, and will still hold transit hostage to impose that. It will be interesting to see Europe's reaction, but I don't see them taking sides in favor of Russia in this conflict.

I presume that Gazprom sees little downside to this, expecting that this will improve the prospects of its direct pipeline projects like Nordstream and Southstream, but this might be a bad miscalculation.

With the nuclear lobby strengthened in recent years, and wind industry actually able to deliver, it's quite possible that plans to move away from gas-fired power generation could finally take shape and make Europe, for almost the first time, focus on the demand side of the equation.

Gazprom's main asset has been its reliability. Its extended shenanigans in Ukraine (where their case, once again, is rather narrow and weak, altogether) are endangering this a lot more than they improve prospects for additional revenue from Ukraine.

Energy Bulletin has an article on the impact of the gas situation on prospects for the Nabucco pipeline (ignoring one key option that I've been meaning to write a post on for a while) - Russia-Ukraine gas row - cacophonic overture to Nabucco summit.

he hardship imposed on Central and Southeastern Europe by the delivery hiatus of Russian gas via Ukraine has unleashed a free flow of speculations about the future of the Nabucco pipeline project. Nabucco could bring Europe a modicum of badly needed independence from Russia’s state-dominated Gazprom, the world’s largest gas company. It could also provide some protection against being held hostage by the endless wrangling between Moscow and Kiev over prices, pilfering, and unpaid bills.

To seal the deal and make final commitments, a summit is scheduled in Budapest on January 26-27, with the participation of consortium members (Austria, Bulgaria, Germany, Hungary, Romania, and Turkey) and potential suppliers (Azerbaijan, Egypt, Iraq, Kazakhstan, and Turkmenistan), the European Union (as represented by the Czech Republic, which is currently filling the role of the Union’s rotating presidency, and the EU energy commissioner); the Council of Europe and the European Bank for Reconstruction and Development. Invitations have also been extended to the United States, Russia, and Georgia -- a temporary transit country for Caspian gas shipped to Turkey.

While the most recent bout between Russia and Ukraine appears to raise Nabucco’s prospects, other news and the entire constellation of circumstances leading up to the summit are discouraging.

Nabucco’s stage, cast, and maddening difficulties of orchestration
With an estimated construction cost of $10 billion, the pipeline would transport Caspian and Mideastern gas along its 2,050-mile long route from Erzurum, Turkey, through Bulgaria, Romania, and Hungary, to the Baumgarten Hub in Austria, from where further customers in Central and Western European would be served. If construction begins next year, as currently envisaged, the system could become operational by 2013, and could reach its full throughput capacity of 31 billion cubic meters per annum (bcm/y) by 2020. The Nabucco consortium is managed by Austria’s OMV, Central Europe’s top oil and gas group, and includes the leading energy companies of the rest of the four countries along its route, plus the German utility giant, RWE.

Nabucco enjoys EU support and U.S. approval, yet it has been struggling from the start. It has to compete for Caspian and Mideastern gas resources not only with formidable Gazprom, which is building up its capacity to serve European markets, but also with China, to some extent India, and with other projects designed to reduce Russia’s grip on Europe’s energy sector.

Gazprom’s ability to deliver gas to Europe will increase through the construction of the North Stream (completion date 2012), the South Stream -- Nabucco’s direct rival -- with 2015 as the completion date; and the expansion of the Blue Stream, supposedly ready by next year. The main Gazprom-competing projects, in addition to Nabucco, are the Turkish-Greek-Italian Gas Connector (completion date 2012), the Trans-Adriatic Pipeline (completion date 2012), and the White Stream or Georgia-Ukraine-EU line (proposed).

While I usually view the Iraq occupation as an American grab for Iraq's enormous reserves of cheap-to-extract, high quality oil, one little watched aspect is the potential for Iraqi gas to meet European gas needs, via the Nabucco pipeline, as indigenous production falls - especially as the only real alternative is to become a captive market for Tsar Vladimir.

There is some background here at The Asia Times from last year. This recent presentation from BG asking "Are we facing peak gas" (pdf) shows (at poor resolution) the USGS expects there to be rather a lot of gas through Iraq, though lagging that found in Russia, Iran and the gulf states.

EU Energy Commissioner Andris Piebalgs and External Relations Commissioner Benita Ferrero- Waldner met representatives of the Mashreq countries (Egypt, Jordan, Lebanon and Syria), Iraq and Turkey on May 5 in Brussels to discuss the finalisation of the Trans-Arab gas pipeline, promote its role as a future supplier of the EUbacked Nabucco project and encourage the full participation of Iraq in regional energy activities, including as a partner in the Trans-Arab project.

The Trans-Arab pipeline, which currently runs from Egypt through Jordan to Syria, has a capacity of 10 billion cubic metres per year. The pipeline, which will be interconnected with Turkey and Iraq by 2009, will provide a new transport route for gas resources from the Mashreq region to the EU.

Brussels also hopes that, in the future, the pipeline will be connected with the Nabucco pipeline which will traverse Turkey en route to Europe. During the meetings, discussions focused on prospects for reinforcing the existing cooperation through the Euro- Arab Mashreq gas centre in Damascus, which benefits from technical assistance provided by the European Commission. ...

The European Commission has finalised a Memorandum of Understanding on Energy Partnership with Egypt and another is under discussion with Iraq. A Joint Declaration on energy cooperation between the Commission and Jordan was signed in October 2007 and is now being implemented. “The Arab Gas Pipeline is set to be finalised by the end of the year, opening important possibilities as a new transport route for gas to the EU, particularly for the Nabucco project,” Ferrero-Waldner said.

Piebalgs said the Mashreq countries and the European Union are facing similar energy challenges. “We should seek common solutions to common problems like high oil prices for consumers, climate change or security of supply. A common response is necessary with new pipelines like the Arab gas Pipeline, but also with energy efficiency measures, the spearheading renewable energy in both sides of the Mediterranean,” the EU energy commissioner said.

Piebalgs said that the EU has agreed gas deliveries of seven billion cubic metres annually with Egypt and Iraq. Iraq is to supply around five billion cubic metres of natural gas from 2011 when the Akkas gas field in the western part of the country is producing sufficient amounts. Egypt has also agreed to supply the EU with two billion cubic metres of gas when the Trans-Arab gas pipeline is completed in 2009.
The European Commission has strongly supported Nabucco, which is supposed to supply the bloc with gas from the Caspian Sea region by 2012- 2013 while bypassing Russia. After a meeting with Russian Energy Minister Viktor Khristenko, Piebalgs told reporters Russia is working with its own project, South Stream, and excluded the possibility of linking Russia with the Nabucco network. “We should not ask Russia to join a project which they have never shown interest to join,” he said.