Analysis

Russia didn’t kill Nabucco – it just wouldn’t work

In a reply to yesterday’s post on Nabucco’s woes, Andrew Ryan argues that the Trans-Adriatic Pipeline deal was economically-driven.

Image courtesy of Sémhur

Image courtesy of Sémhur

I think a few things are clear from the previous article, most notably that the decision to opt for the Trans-Adriatic Pipeline was entirely economic. It was driven by market opportunities, scalability, management operability, funding, project quality and transparency.

Many have agreed that the decision to back TAP over Nabucco seems to be a relatively sound decision. Perhaps most importantly, TAP is cheaper, and considering the changing supply environment of Europe, including threats from shale gas and LNG, it appears to be the natural choice.

Although it seems crude, it is perhaps beneficial at this point to look at those who will benefit from this important decision. Italy and Greece will benefit. Their cash strapped economies could do with the boost from a potentially cheaper source of gas, not to mention the huge amount of construction work that will now be needed. In fact, most South European countries will likely benefit from TAP.

Another much touted winner appears to be Russia. Indeed, Judy Dempsey of the Carnegie Endowment for International Peace called the development a “victory for Russia”. These stories follow the basic line of Gazprom being able to lock in its export quantities to the Eastern European and South-Eastern European Countries. Through this, it will supposedly be able to continue throwing its political weight around in the area.

The suggestion is therefore that the adoption of TAP over Nabucco was an Azerbaijani act of deference to Russia, and that the hugely expensive South Stream was simply a bluff to put Nabucco on a permanent hiatus. Russia, these analysts argue, has gotten its way and can continue exploiting Eastern Europe.

Conversely, who are the losers in this new scenario? Probably Eastern and South Eastern European countries like Hungary and Bulgaria. The EU’s plan to bring energy diversification to these countries has been limited. Paolo also did well to note Ukraine’s strange absence from the media coverage of this topic, and how the diversification plans of these countries will be significantly undermined by the adoption of TAP.

You would be hard pressed to make a cogent argument that suggests the choice of TAP over Nabucco was a shady political decision rather than a rational, economic one. I think critics who have tried this and stressed some kind of mysterious and continued Russian chokehold over Eastern Europe are mistaken.

Indeed, it is here I diverge from Paolo, not because his conclusions were wrong, but because he did not take them far enough.

The EU has increased its reliance on Gazprom almost year on year. In contrast, countries like Ukraine and Bulgaria are actually reducing their demand for natural gas. Even Hungary’s demand peaked in 2005 and has remained below this level ever since. It appears as though the choice of TAP over Nabucco did not mark a victory for Russia, nor an economic triumph for the TAP cartel, but more importantly, an economically led decision to protect the interests of the more powerful EU countries.

It was logical not only economically, but politically as well.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s