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 is in trouble” and that even MOL, the Hungarian participant in the consortium of six companies, is “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 in 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 needs explanation. Many are plotting what business he is about to make with Moscow. Putin must sense the vulnerability and international isolation of the Hungarian leader. True, there are huge question marks vis-á-vis the pricey Southstream. Yet if it gets built, better to be on board than left out.
The EU’s Southern Gas Corridor concept, of which Nabucco was the poster project for a long time aims to diversify the gas supplies of East 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, BOTAS and MOL) are awash with cash to spend on projects with distant and uncertain return. 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 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 teamed up recently to realize the Trans-Anatolian Pipeline (TANAP), with a capacity of 16 billion cubic meters per year: that sinks Nabucco’s original concept to be built from Eastern Turkey, 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 longer run 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. Best case scenario is that Caspian gas reaches Europe sometime around 2018. In the meantime these countries should rather pursue regional interconnections and building of LNG terminals to gain access to supplies from outside Russia. That is what Poland and the Baltic countries are doing. Hungary should also proceed with the help of Croatia. All the more so because new offshore sources may come online soon in the Eastern Mediterranean and Gazprom is eyeing to prevent prospective Israeli and Cypriot LNG 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.
David Koranyi is the deputy director of the Atlantic Council’s Eurasia Center in Washington, DC. The article was also published on Turkey's English news site, Hürriyet Daily News.