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Hungary leaves Nabucco on its deathbed

Hungary demands fed by Russian fuels

HUNGARY'S prime minister, Ferenc Gyurcsany, has dealt what could be the death blow to the Nabucco pipeline project. Last month, he said his country would back a rival project being promoted by Gazprom. "Nabucco has been a long dream and an old plan," he said in an interview with the International Herald Tribune. "But we don't need dreams. We need projects."

Nabucco has long been considered in Brussels to be an important part of the European Union's (EU's) efforts to diversify supply of natural gas away from Russia. Andris Piebalgs, the energy commissioner, has said that the project is a "strategic priority".

The EU's investment banks, the EBRD and EIB, have pledged to fund up to 70% of the €5bn ($6.6bn) project. Nabucco would deliver 30bn cubic metres a year (cm/y) of gas from Central Asia, the Middle East and North Africa, passing through Turkey and the Balkans and ending in Austria, for distribution throughout central Europe.

Gazprom, however, plans to build an extension to its Blue Stream pipeline, which stretches under the Black Sea to Turkey. That line would also pass through the Balkans and end in Hungary, which Gazprom says would become another hub state for its gas. Germany has already emerged as a strategic hub state for Gazprom through the Nord Stream pipeline project, which will eventually export 56bn cm/y of gas through the Baltic Sea into northern Germany.

Gazprom sees South Stream, the name being given to its Blue Stream extension, as a southern counterpart to Nord Stream. Those two pipelines are part of Gazprom's attempts to expand its strategic options in an effort to increase its income from exports, says Dieter Helm, an economist from Oxford University.

Last year, OMV, the Austrian company leading the consortium planning to develop Nabucco, said there could be "synergies" between its project and Gazprom's. That suggested the rival lines could be rolled into one. Given that its strategic priority was to diversify away from Russian gas, such an admission from OMV meant Nabucco's rationale was already in doubt – raising questions about why the EU and its investment banks were still backing it.

Bleak future

Hungary's state-owned energy company, Mol, is one the companies in the Nabucco consortium. Mol might remain a participant – but without Hungary's political backing for the project, its future looks bleak. Analysts say both pipelines into the same area of central Europe will not proceed.

Hungary's motivation in backing Gazprom's Blue Stream extension is straightforward. The country hopes to become a regional gas hub, building storage capacity and earning income from transit fees. The government has done its sums, calculating that siding with Gazprom will guarantee its own security of supply – even if such a deal angers its neighbours, who are worried about increasing the region's dependency on Russia. When they signed a memorandum of understanding relating to the project in the summer, both countries emphasised Hungary's future security of supply as a feature of the deal.

"If someone could say to me definitively, you would have gas [through Nabucco] by a certain time, fine, but you can only heat the apartments with gas and not with dreams," said Gyurcsany. He added: "Blue Stream is backed by a very strong will and a very strong organisational power – and there is capacity behind it."

Hungary's backing for the Blue Stream extension is another victory for Gazprom, which has perfected the art of appealing to the national interests of EU member states to undermine Brussels' diversification goal. It also reveals how difficult the European Commission's task of persuading member states to "speak with one voice to Russia" has become.

Meanwhile, as Gazprom pledges to fill the South Stream pipeline, Nabucco is struggling to find source gas. Although the Shah Deniz field, in the Caspian Sea, is exporting to Turkey, Nabucco's ambition to transit Iranian and Egyptian gas remain, at best, pipedreams. Alexander Medvedev, head of Gazprom's export arm, told Petroleum Economist in November, "Nabucco is a virtual pipeline". Now it is virtually dead. n

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