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Nabucco: Study delays pipeline until 2011

Omv's plan to bring a new source of gas to southern Europe from Turkey has suffered a two-year setback. But the Austrian oil and gas company remains convinced its Nabucco pipeline project will be vitally important to Europe in the next decade.

Having carried out a feasibility study, OMV says the 30bn cubic metres a year (cm/y) pipeline – which will bring gas to Baumgarten in Austria from Turkey, through Bulgaria, Romania and Hungary – should be operational in 2011. The company had said gas would start flowing in 2009, but construction is now expected to take two years longer than previously expected. The feasibility study also resulted in the total length of pipeline that needs to be built being shortened to 3,300 km from 4,500 km – the revised plan makes more use of existing pipelines.

However, while some of the details have changed, the company's view of the pipeline's importance has not. "In the next 20 years, 200bn cm of additional gas will be required by Europe. Where will this come from?" asks Helmut Langanger, head of exploration and production at OMV.

Russia supplies 140bn cm/y to the 25 members of the European Union (EU) – 44% of EU gas imports. But, with the new fields being developed in the north of the country expected only to offset declines at existing large gasfields, Russia's capacity to lift supplies to Europe is limited.

Besides, there are obvious concerns about relying on one supplier for almost half of Europe's gas, especially with a government as unpredictable as President Vladimir Putin's and the prospect that Russia could choose to sell additional volumes of gas to China.

That makes alternative supply projects such as Nabucco extremely attractive, argues OMV.

Kelvin Beer, director of European gas and energy security at Ernst and Young, agrees that Nabucco is important because it will enhance Europe's supply security. "If we believe in energy security, we have to make Nabucco work," he says, adding that western European countries – including the UK, which is set to become a net gas importer – should assist with project planning to give it more chance of being implemented.

Beer adds that Nabucco would catalyse energy-security dialogue and improved relations between the various countries it would involve, while also making a significant contribution to economic development in the eastern European transit countries.

However, not all analysts are so positive. Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies, says the argument about supply security is too vague: "Simply varying the regions from which gas is obtained does not automatically mitigate that risk. If gas has to pass through five countries before it reaches Europe, there is no immediate security."

Indeed, although it might eventually enhance international relations, the number of countries involved in the Nabucco pipeline is probably the biggest obstacle to its fruition. Long-term supply contracts must be signed between OMV's partner companies – Turkey's Botas, Romanian Transgas, Mol of Hungary and Bulgaria's Bulgargas – each of which will hold equal stakes in the project. Contracts must include third-party access agreements to ensure fixed tariff levels for the gas supply.

Although there is a long way to go, OMV has made a start. Last month, it reached an agreement with Bulgargas to collaborate on pipeline financing and other aspects of the project. Another problem, however, is that the project backers have not decided where the gas will originate from. Possible suppliers are Azerbaijan, Egypt, Iran, Iraq and Russia. A final investment decision on Nabucco will be made by 2007. Costs are estimated at Euro4.6bn ($5.57bn).

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