Consortium looks to Iran for natural gas

TBILISI, Georgia -- Uncertain supplies from Central Asia and Iraq have led a European Union-backed pipeline consortium to look to Iran as a source of natural gas to reduce Europe's dependence on Russian energy.

The proposed $11.1 billion Nabucco pipeline, which would run from Central Europe through the Balkans and Turkey, would bring natural gas to Europe from Caspian Sea nations if it comes online in 2014.

Austria, Bulgaria, Hungary, Romania and Turkey -- the countries through which the pipeline would pass -- will sign an agreement in Ankara, the Turkish capital, next week to provide a legal framework for allocating gas to each country, Agence France-Presse reported Saturday.

However, such a signing has already been delayed several times.

Reinhard Mitschek, managing director of Nabucco Gas Pipeline International, confirmed in a phone interview that he envisions supply coming from two feeder pipelines -- one in Georgia, the other in Iran. Nabucco would also possibly transport Iranian natural gas to European consumers.

"In order to secure supplies, every market player -- be it a producer, or a transmission system operator, or a downstream operator or a gas trader -- wants to diversify the gas portfolio. And that's what we are doing," he said.

Mr. Mitschek stressed that Nabucco's role is only to transport the gas and the eventual decision whether to buy Iranian gas will be made by European buyers.

The United States has repeatedly voiced opposition to Iranian involvement in the pipeline, but U.S. companies have no direct stake in the project. However, the U.S. could penalize companies involved in Nabucco through its Iran Sanctions Act.

In recent weeks, Iran has provoked strong criticism from Western nations for its violent crackdown against massive protests disputing its June 12 presidential election results.

Ariel Cohen, a senior research fellow at the conservative Heritage Foundation in Washington, said Iran's involvement could endanger European energy security.

"It would greatly increase political risk to route this pipeline through Iran. It is extremely unadvisable, because then you make the whole project a hostage of the regime in Tehran," he said.

However, European Union reliance on Russian gas has hardly been risk-free.

Pricing disputes between Russia and Ukraine have cut off natural-gas supplies to Europe for weeks every winter since 2006, forcing the EU to look for alternatives. In January, the European Commission pledged to provide 250 million euros ($353 million) for the new pipeline project.

Initially, Nabucco plans to draw from gas fields in northern Iraq, Azerbaijan and elsewhere in Central Asia. But it has yet to secure commitments from these suppliers.

Most of Azerbaijan's natural-gas supply already ends up in Turkey, leaving little to be passed on to Europe. And Russia, whose proposed South Stream pipeline would serve essentially the same market as Nabucco, has already signed several deals in Central Asia to buy up natural-gas supplies in an apparent effort to short-circuit Nabucco.

An $8 billion deal the Nabucco consortium recently signed with the Kurds of northern Iraq, which would have supplied the necessary natural gas, was vetoed by Iraq's oil minister, who said Iraq's constitution did not allow the Kurds to negotiate oil deals independently. The deal also drew strong criticism from Turkey, which faces its own Kurdish separatists and fears the oil revenue would fuel Iraqi Kurds' aspirations for an independent state.

Russian officials have stated that in order for Nabucco to be viable, it would have to involve Iranian gas. Many Western experts have also questioned the pipeline's ability to secure sufficient upstream gas supplies without Iran.

"They definitely need more sources," said Mamuka Tsereteli, a specialist on Eurasia and energy policy at American University in Washington.

Mr. Tsereteli said that Nabucco is also hampered by the lack of a large stakeholder to take the lead in securing supply deals.

"The key problem with Nabucco always was to have ... a committed buyer and a committed supplier," he said.

Nonetheless, officials in the countries involved in Nabucco are optimistic.

"I think the likelihood of Nabucco [being realized] is increasing, not decreasing," said Temuri Yakobashvili, executive director of the Georgian Foundation for Strategic and International Studies, a think tank in Tbilisi. Mr. Yakobashvili also serves as Georgia's minister for reintegration.

"We have no doubt Russia is trying to undermine the Nabucco project. At the end of the day with the combination of political and economic leverage ... when Russia is being so openly aggressive, countries should be alerted," he said.

Last year, Georgia and Russia fought a brief war that led to Russian recognition of two breakaway republics in the Caucasus, Abkhazia and South Ossetia.

If Nabucco unravels, the European Union has another alternative - White Stream, which is currently gathering funds for a second stage of feasibility studies.

White Stream would run from Azerbaijan through Georgia and under the Black Sea to Central Europe through Romania and Ukraine. It would not involve Iran. Although the governments of Georgia and Ukraine have been lobbying heavily for investment in White Stream, experts are skeptical the project will come to fruition.

Mr. Cohen said White Stream was nothing more than a "trial balloon to speed up Nabucco."

Another issue motivating Europe to complete Nabucco is environmental standards that will force European nations to reduce greenhouse-gas emissions over the next two decades.

"Emission reduction cannot take place unless coal is replaced by natural gas ... because you can't really cover your need by renewables only," Mr. Tsereteli said.