Pipeline Politics: Europe's Stubbornness, and the Virtues of Shale

Posted by: Steve LeVine on July 10

On the heels of the Obama-Medvedev-Putin summit, five nations will sign what they are calling a breakthrough agreement for a long-troubled natural gas pipeline meant to change the energy equation in Europe. That’s code language for reducing a perceived threat of increased Russian influence on the continent.

As Sylvia Westall and Orhan Coskun at Reuters suggest, don’t crack the champagne yet.

The background is this: Washington and the EU are troubled by Russia's domination of Europe's natural gas market; Gazprom provides some 25% of the gas supply, and the West perceives that Moscow will use that market power for political advantage. Russia denies any such intention. Yet the West's persistent concerns are the logic behind Nabucco, a proposed pipeline that would help to diversify Europe's gas supply.

Turkey, Bulgaria, Romania, Hungary and Austria – countries through which Nabucco would pass – will be the signatories to the agreement Monday. Though Nabucco’s devisers have been struggling for years, the formula for building a pipeline is actually quite simple: If you have a sufficiently large reserve of natural gas, financiers will probably pay for the construction of a pipeline to sell it. Conversely, if you lack that gas, bankers will tell you to come back when you get some.

The latter is the situation for the European Union and Washington, Nabucco’s primary backers.

Turkmenistan – originally, Nabucco was meant to build on U.S. efforts to provide Central Asia with an alternative transport route to Russia – has balked at contracting with any serious western players for any fields on-shore, where the large volumes of natural gas are situated. Azerbaijan -- a possible backup player until Turkmenistan possibly changes its mind – last week signed a deal with Russia for its volumes from the super-giant Shah Deniz field. The re-election of Mahmoud Ahmadinejad, and the bloody crackdown that has followed, suspends hopes for the medium term at least for Iran becoming that source of natural gas. Iraq is also mentioned, but that’s only a reality in the event of a deal between the Kurds and the central government, a long-shot indeed.

The question is why the pro-Nabucco forces persist in pushing on a proverbial wet noodle. While the physics of inertia carry them forward, they might pay attention to other developments acting to diversify Europe’s natural gas.

As No Hot Air blogs, one is new technology that makes shale gas possible and economical to extract from convenient places like Germany, Hungary and Poland. Closer at hand in terms of availability is liquefied natural gas, which has come on stream in large volumes out of Qatar; but Europe must build the infrastructure to handle it.

Will Europe and the U.S. shift their focus to these very real alternatives?