Offer helps EU ease reliance on Russian gas

Monday, April 14, 2008

The European Union has broken through in efforts to lessen its dependence on Russian natural gas with a concrete offer of extra supplies from Turkmenistan.

Benita Ferrero-Waldner, EU external relations commissioner, said the Turkmen president had last week guaranteed that 10bn cubic metres of gas a year would be available for the EU.

President Gurbanguly Berdymukhammedov's pledge comes amid intense competition for access to Turkmenistan's huge gas reserves since the death last year of Saparmurat Niyazov, its isolationist former leader.

Mr Berdymukhammedov has promised increased supplies to Russia, the biggest buyer of Turkmen gas, through a proposed pipeline, and to China via a long trans-Asian route planned for completion next year. A southern route to Pakistan has also been mooted.

The US and EU have been pressing for gas to be shipped west across the Caspian, ideally through an undersea pipeline that would avoid Russian territory and connect to the proposed 3,300km Nabucco route, which would link the Caspian and central Europe.

Mrs Ferrero-Waldner told the FT after returning from the central Asian country: "The president... gave us assurances that 10bcm will be set aside for Europe in addition to possibilities in new fields to be tendered."

It was not a "vast quantity", she said, but "a very important first step".

Industry experts say it is unclear how or when the gas could be delivered. Virtually all current Turkmen export production, of 50bcm, is covered by contracts running to 2028. The country has big additional reserves awaiting development, but it faces technical difficulties and legal and political objections from Russia and other Caspian shore states. An undersea pipe to Azerbaijan that would connect to an existing west-bound route could face similar challenges.

There were three short-term options, Mrs Ferrero-Waldner said: to close a 60km gap between Azeri and Turkmen offshore installations with a mini-pipeline; to build an onshore link to Kazakhstan to connect with a route to Azerbaijan; and to compress the gas into liquid form and take it by tanker across the sea.

Mrs Ferrero-Waldner said the Turkmen offer, which would run from next year, required European business to invest in pipeline infrastructure and exploration.

Reinhard Mitschek, managing director of Nabucco, said it was on track to start building the €5bn ($7.9bn, £4bn) project in 2010. The first phase, from Austria to Ankara, would be completed in 2013. It would connect with a pipe running east and then be extended to the Turkish border.

The first gas for the pipeline would come from Azerbaijan's Shah Deniz-2 offshore field, which would initially supply 8bcm annually. Other potential suppliers included Kazakhstan, northern Iraq, Egypt and Iran, Mr Mitschek said.

At its full 30bcm a year capacity, Nabucco will supply only a small portion of Europe's 500bcm needs. The bulk of the rest will continue to come from Russia.

This article was featured on the Financial Times news website.

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