http://www.digitaljournal.com/article/265784

EU looks to GCC, Iraq to bypass Russian gas politics

Posted Jan 23, 2009 by Oliver Pearce
Just two days after Russia restored gas supplies to Europe via the Ukraine, Europe’s leaders vowed to never again be caught cold, promising to diversify its energy suppliers – a move that could increasingly benefit the resource rich Gulf Arab states.
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Oliver Pearce
On Tuesday Russia announced that it was restoring gas exports via the Ukrainian pipelines, which pump 80 percent of Russian gas to Europe, after a two week freeze that left hundreds of thousands of homes in Eastern Europe without heating and factories idle, costing tens of millions if Euros to local economies.
The price dispute, an annual occurrence since 2006 when Gazprom, the Russian state owned energy giant, began demanding more market-like prices for energy supplies to former Soviet-bloc states after years of subsidies (seen by many as punishment for the pro-Western tendencies of the incumbent authorities in Ukraine and Georgia), escalated to unprecedented levels, forcing the European Union (EU) to mediate between the two sides.
As a result of the recent events, AFP reported on Thursday, leaders from within the EU, in addition to other, non-member European states, have clamoured to publicise a raft of proposals to diversify energy supplies and ensure security, from new reservoirs (Croatia) and pipelines to sates with better storage capacity (Serbia-Hungary) to a more radical solution: nuclear power (Poland, Slovakia).
But whilst some of these proposals may stall because of cost, or controversy, energy hungry nations are turning to the Middle East, and the Gulf states in particular, to secure long-term, strategic supplies of oil and gas.
There is nothing new about oil supplies from this region; its abundant reserves of ‘black gold’ have been the aim of colonial and ideological struggles for the best part of 100 years, but only recently has gas seriously begun to challenge oil as the commodity of choice, both in terms of internal investment and foreign demand.
Consequently, Gulf gas exports have become an integral part of the EU’s strategy to diversify itself away from Russia.
Leading the pack is the tiny emirate of Qatar, positioned in the heart of the Persian Gulf. According to the CIA Factbook (dated 01/01/2008) it boasts the world’s third largest proven gas reserves, followed by Saudi Arabia and the UAE. Oman comes in 29th place internationally; Iraq sits in 11th place, with much of its reserves still unexplored.
Whilst natural gas production has long been the established order, based on long-term delivery contracts and capital-intensive pipelines, Qatar has driven ahead with making Liquefied Natural Gas (LNG) a commercially viable product. It differs from natural gas in that it is liquefied, making transportation and storage a simpler, but far more costly affair.
Cleaner to burn than oil, LNG is fast becoming the gas of choice for producing and consuming nations alike. Qatar is the world's largest producer and exporter, and late last year began delivering LNG to the world’s largest gas terminal, Qatargas II, on the Welsh coast, in a move by the British government to ensure secure supplies of gas and reduce dependence on its old adversary, Russia.
Since November, several senior European politicians have made trips to the Gulf to discuss energy supplies, with both the Prime Ministers of Poland and Hungary having made multi-sate visits to that aim; both have come away with plans to develop LNG links with Qatar and Oman.
Despite the emerging role of LNG in European gas imports, at the heart of an ambitious supply chain that would by-pass Russia and Ukraine altogether lies a traditional pipeline of impressive geo-political considerations: Nabucco.
“The Nabucco pipeline is a planned natural gas pipeline that will transport natural gas from Turkey to Austria, via Bulgaria, Romania, and Hungary. It will run from Erzurum in Turkey to Baumgarten an der March, a major natural gas hub in Austria,”
its Wikipedia entry records.
Six-party talks are to be held next week in Budapest to push ahead with the project, which has stalled several times in recent years, notably due to political concerns, AFP reported.
Although the founding nations are European, the massive price tag associated with such a vast project has led to a search for cheap gas supplies that could make it economically viable – even if the current political will clears the remaining obstacles.
Numerous reports have surfaced about the possibility of injecting gas from the Arab Gas Pipeline, which connects Egypt, Jordan, Syria and Lebanon (Iraq was added to the list in 2004), but like the EU project, political as well as financial barriers have limited its completion. If it were to become operational in the near future, it is doubtful that its member states would want to miss out the lucrative European market.
Unsurprisingly the mention of Iraq leads to widespread scepticism – its oil and gas infrastructure, not to mention legal environment, is far from solid – but promising developments make its involvement a more realistic proposition.
Last year Baghdad opened the giant Akkas gasfield, which borders Syria, to foreign investment, and signed an MOU with the Syrian Ministry of Oil to supply gas, as well as asking Shell to undertake "a long-term production test" at the site; last week Iraqi paper Az-Zaman reported that
“Iraq intends to construct a new pipeline to ferry its natural gas via Syria to Europe through the Mediterranean Sea.”
The Iraqi Ministry of Oil also signed a multi-billion dollar contract with Shell in December giving the British oil and gas giant the exclusive rights to develop gas reserves in the southern province of Basra, in addition to building LNG terminals off Iraq’s Persian Gulf coastline.
EU and Iraqi officials have held a series of talks over the past year regarding Iraqi energy supplies to the EU, and Prime Minister Nouri Al-Maliki visited Brussels in the summer of 2008 for talks on this issue.
Returning from a fact finding mission to Iraq, Jana Hybaskova, a Czech member of the European Parliament (the Czech Republic currently holds the rotating presidency of the European Union), announced this week that Iraq will supply energy to Europe within the next five years.
As with the Nabucco and Arab Gas Pipeline projects however, it will be some time before Iraq is ready to produce and export serious quantities of gas to European consumers, so any expectations of a decoupling from dependence on 'Kremlin energy' are premature.