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The Southern Energy Corridor: to be or not to be
21 October 2010 17:33

In recent years a discussion about the future of the Southern Energy Corridor, which envisages connecting the oil and gas rich Caspian and neighboring countries with consumers in Europe and elsewhere, has gone a long way from theoretical considerations to practical steps.

Europe-- the consumer -- has defined this “third pillar” of the east-west energy route “Nabucco Plus” while theRussian Federation-- the producer -- considers it in the form of the South Stream. The southern corridor is meant to supplement the northern route consisting of the Nord Stream and Yamal-Europe pipelines as well as the central corridor passing through the Ukrainian gas transportation system. And whatever consumers or producers have in mind while going south, the role ofTurkeyin this enterprise is pivotal.

It looks as if all the necessary preconditions exist to make the southern route in its European version a reality. There is plenty of oil and gas inAzerbaijan,Iran,IraqandTurkmenistan. South andCentral Europelook thirsty for additional supply sources. The technology is there and even financial resources are available. And yet it creeps along at a snail’s pace. Why?

The answer lies in geopolitical considerations. The availability of Caspian gas in the Balkans is not a desirable development for Gazprom. Using its traditional long-ago established relations with consuming countries in the region, the Russian giant uses every opportunity to mobilize as much support for the competing South Stream as possible. The usual argument about the so-called “insufficient stability and unpredictability” of “transit states” (readUkraine) no longer works, so another approach has been chosen. They say there is no gas for Nabucco. But there is no gas for South Stream either -- or why else would Gazprom askAzerbaijanandTurkmenistanto sell all available gas toRussia? In my humble opinion, the real problem with Nabucco is the lack of political will and not the lack of gas. It was recently announced that the investment solution for Nabucco has again been postponed to 2011. Too bad.

InUkrainewe experience the same never-ending story. European powers are usually very quick when it comes to critical statements and are very slow when it comes to spending efforts and some money to participate in the upgrade projects of the Ukrainian gas transportation system. And this is happening in spite of the obvious fact that such an upgrade would resolve an immediate problem of delivering increasing volumes of Russian gas toEurope, if necessary.

If Nabucco is constructed, the already enormous importance ofTurkeyinEurasiawill grow qualitatively. Baku-Tbilisi-Ceyhan (BTC); Nabucco; possible interconnectors toGreece,ItalyandBulgaria; and Samsun-Ceyhan (if built) will transformTurkeyinto a pivotal transit hub for hydrocarbons. I also believe that ifTurkey’s transit abilities in terms of cargo shipments are fully materialized and supplemented by new highways and railroads along and across the country, politicians in many European capitals will look atTurkey’s European aspirations differently.

At the same time a majority of international-grade experts believe that with South Stream moving ahead there will be no Nabucco. Then, in addition to a clear geopolitical loss forTurkey, the littoral states around theBlack Seawill soon be dealing with an environmentally dangerous and economically unjustified project consuming a lot of resources. TheBlack Seais a reservoir of 3 billion tons of hydrogen sulfide -- a flammable and very poisonous gas which when mixed with air is explosive.

As for the economy of the South Stream, one should take into account the recent developments on the European spot gas market where LNG from Qatar and Trinidad and Tobago is being traded sometimes 30-40 percent cheaper than Russian gas. No wonder European consumers asked Gazprom to renegotiate long-term contracts already. Huge reserves of shale gas in theUnited Statesmay soon transform this country from net importer to exporter of natural gas, making even more LNG available forEurope. Wood and McKenzie reports that in just six months of this year $21 billion in investments were made into the development of shale gas deposits. Who will need the South Stream and Nabucco in four to five years?

The time is ripe to make a southern corridor in its European outfit a reality. An upgrade of the Ukrainian gas transportation system and the construction of Nabucco will be cost-effective and environmentally safe answers toEurope’s needs; Samsun-Ceyhan will constitute an excellent solution for the congestedBosporus.Everyone wins in this case.

Today's Zaman,

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