Atlantic Council

David Koranyi, deputy director of the Council's Patriciu Eurasia Center, published a commentary piece in the Hurriyet Daily News entitled "Nabucco and the embattled Hungarian Prime Minister."

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Nabucco and the embattled Hungarian Prime Minister

DAVID KORANYI

I seldom find myself defending Hungarian Prime Minister Viktor Orbán and -- full disclosure -- not because I worked for his predecessor. But the most recent scandal over him, heralding the doom of the Nabucco pipeline, shows why squandering your international credibility is bad politics: you get into trouble even when you are just stating the obvious.

Orbán said the other day in Brussels that “Nabucco [was] in trouble” and that even MOL, the Hungarian participant in the consortium of six companies, was “leaving the project.” Critics jumped on the statement straightaway and came up with all kinds of conspiracy theories about the government selling out the country to the Russians. This was fuelled by a recent visit of Gazprom’s Alexei Miller to Budapest to finalize an agreement on Southstream, Moscow’s concept to dry out the ever problematic Ukrainian route.

It certainly has not helped Orbán that in opposition he was firmly against Southstream. His newfound enthusiasm thus needs explanation. Many are wondering what business he is about to make with Moscow, and Putin must sense the vulnerability and international isolation of the Hungarian leader.

True, there are huge question marks vis-á-vis the expensive Southstream, but if it does get built, it is better to be on board than left out.

The EU’s Southern Gas Corridor concept, of which Nabucco was the poster project, had the long term aim of diversifying the gas supply of east and central European member states, still excessively dependent on Russian gas and Ukrainian transit. Gazprom’s monopoly over these countries translates into prices 5-6 times higher than the US Henry Hub price and well above what the French or the Germans have to pay.

Yet Nabucco has been struggling for quite some time. An increase in steel prices caused the initial price tag of 7.9 billion euros to almost double. None of the current consortium members (RWE, OMV, Transgaz, Bulgargaz, BOTAŞ and MOL) are awash with enough cash to spend on projects with distant and uncertain returns. The feeble gas demand in Europe due to the economic crisis, and uncertainties around gas sources to fill the envisioned 31 billion cubic meters (bcm) capacity per annum, caused the project to stall. Baghdad and Erbil have still not sorted out their differences over hydrocarbon revenues. Turkmenistan also cannot be a supplier until littoral states cut the Gordian Knot of Caspian delimitation – if that ever happens. That leaves only some 10 bcm Azeri gas available initially.

Furthermore Azerbaijan and Turkey recently teamed up to realize the Trans-Anatolian Pipeline (TANAP), with a capacity of 16 billion cubic meters per year. This sinks Nabucco’s original concept of being built from eastern Turkey and connecting to an enhanced Baku-Tbilisi-Erzurum gas pipeline.

Undoubtedly, the Southern Corridor remains essential in diversifying natural gas supplies to East Central Europe and the Balkans. In the medium and long term a streamlined but scalable pipeline that connects to TANAP, such as BP’s SEEP or a revised Nabucco-West may have a chance. But realism shall prevail. The best case scenario is that Caspian gas reaches Europe sometime around 2018. In the meantime, these countries should rather pursue regional interconnections and the building of LNG terminals to gain access to supplies from outside Russia. That is what Poland and the Baltic countries are doing, and Hungary should also proceed with the help of Croatia. This is all the more true because new offshore sources may come online soon in the Eastern Mediterranean, and Gazprom wants to prevent prospective Israeli and Cypriot LNG from reaching central Europe. So, the sooner Europeans move the better.

Orbán’s statement was unpolished and unnecessary. All the same, his diagnosis on Nabucco is essentially valid: in its original form the project is facing insurmountable difficulties that cannot be overcome by sheer political will.