The Nabucco Pipeline Project: Gas Bridge To Europe?

The Nabucco gas pipeline project represents an opportunity for the EU to diversify its gas supply options and lessen its reliance on Russian gas imports.

Despite widespread EU support, there remain questions as to whether Nabucco will be able to attract sufficient gas volumes in order to make the project viable within its current development window. This article provides a brief overview of the project, its goals and the remaining challenges. It also explains why a gas pipeline project is named after an opera by Giuseppe Verdi.

Isn’t Nabucco An Opera?
Nabucco is a proposed 3,300-km, 56-inch diameter gas pipeline starting at the Georgian/Turkish (and/or the Iranian/Turkish border) and running to Baumgarten in Austria, via Turkey, Bulgaria, Romania and Hungary. The Nabucco project is heralded by its sponsors as “a new gas pipeline connecting the Caspian region, Middle East and Egypt via Turkey, Bulgaria, Romania, Hungary with Austria and farther on with the Central and Western European gas markets”. From a political standpoint Nabucco is also seen to represent an opportunity for the EU to diversify its gas supply options and, symbolically if not in reality, lessen its reliance on Russian gas imports, which in 2008 amounted to around 156 Bcm (billion cubic meters) or around 32% of total EU gas demand.

The Nabucco project takes its name from the opera that its sponsors attended immediately following their first project meeting in Vienna. The phase 1 capacity of the pipeline is planned to be 8 Bcma (billion cubic meters per annum) in 2014, increasing in phase 2 to 15 Bcma in 2018, and to a maximum of between 25 and 31 Bcma by 2022. Construction is currently slated to commence in 2011, with first gas to flow in 2014.

The Project’s shareholders comprise BOTAŞ (Turkish state-owned), Bulgarian Energy Holding (Bulgarian state-owned), the Hungarian company MOL, the Austrian company OMV Gas & Power, the German company RWE and Transgaz (Romanian state-owned). Each shareholder has an equal 16.67% interest in the project company, Nabucco Gas Pipeline International GmbH. The project contemplates that 50% of the pipeline’s capacity will be reserved for shareholders, with the remaining 50% available to other gas shippers on commercial terms to be agreed.

Show Me The Money
The Nabucco shareholders estimate the project’s investment costs, including financing costs, to be approximately 7.9 billion Euros. Without sufficiently long-term binding gas through-put commitments, however, the project has been unable to secure the necessary finance. On January 27, 2009, at the Nabucco Summit held in Budapest, it was reported that the heads of the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) committed to provide financial backing for the Nabucco gas pipeline. However, this “commitment” was conditioned on the project meeting "the requirements of solid project financing". Without dedicated gas supplies, and the associated cash-flows, Nabucco may be unable to complete any project financing (at least on a commercial basis).