Plans to move Middle Eastern gas to Europe stuck in the tube
Meanwhile, the recent European Union (EU) sanctions on Iran have spelled the end of the viability of the much feted Nabucco gas pipeline that was to take gas from the AGP, Iran and the Caspian region, via Turkey, to Europe. The root of such pipeline problems is that usual suspect: politics. The AGP was attacked in the Sinai, according to statements by the Egyptian Ansar Al Jihad group, as part of a campaign against “the corrupt (Egyptian) regime and its Jewish and American backers.” Indeed, last year’s revelations about the preferential pricing of Egyptian gas have shown the shadowy political bends of the pipeline. When the AGP was launched in 2003, the Egyptian Natural Gas company described it as facilitating “the dawn of Arab integration”, but recently revelations have shown how it was used to sweeten Egyptian ties with Amman and Tel Aviv, with Washington’s blessing.
In 2005, Cairo had inked a long-term deal with Tel Aviv to sell gas at anywhere from $0.70 to $4 per million British thermal units (BTU), depending on which media sources one consults, well below the global average of $6 to $7. Jordan’s special price arrangement with Cairo was $3 per million BTU. The pipeline attacks have cost Egypt needed export revenues, likely the reason they pulled the plug on the Israeli contract last month. Now the Israelis will continue to shell out an additional $4 billion to source gas elsewhere while Jordan's energy bill will be an extra $2.4 billion this year to offset the loss of as much as 25 percent of the kingdom's energy supplies.
Significantly, the pipeline shutdown has highlighted the AGP’s over-dependence on Egyptian gas, something energy observers have pointed to for years. On paper, Egyptian gas was to flow through Jordan to Syria and Lebanon, with Syria pumping in its own gas for export on to Turkey and ostensibly to Europe. The problem is Egypt's domestic energy consumption is rising fast, as is Jordan's and Syria's; even if the pipeline is completed, there will likely not be enough Egyptian or Syrian gas flowing through the AGP to meet even the Levant's needs, let alone leave extra to sell on to Turkey or Europe.
For the AGP to be viable if or when it re-starts, more gas must be sourced — perhaps from Iraq or Qatar to supply the AGP in Syria, or from Iran and the Caspian region which can connect to the AGP via the Nabucco network in Turkey. Iraqi instability, however, means completion of that part of the pipeline network is years away, while the Nabucco pipeline is no closer to realization than when it was announced in 2002.
Financing Nabucco has been a major obstacle, which is forecasted to cost as much as $25 billion. But what may be the death knell was the EU's decision to follow Washington in slapping sanctions on Iran earlier in the year, ending all energy exports from Iran to the EU. Nabucco is only commercially viable if it can draw on Iran’s reserves — the world's second largest — as Azerbaijan and the Caspian states cannot provide enough gas for Europe, Turkey, the AGP and other export commitments.
What is supremely ironic about the EU's decision is that Nabucco was supposed to loosen Russia’s grip on the EU's gas imports — currently at some 34.2 percent — given Moscow’s propensity to turn off the taps to enforce its will, as it did during a price dispute with the Ukraine during the icy winter of 2009.
Theoretically, pipeline networks linking the Middle East, the Caspian region and Europe would make for glorious dividends for all involved. Political shenanigans, however, will likely keep these networks pipedreams, especially given that the crucial link — Syria — looks to be spinning down the tube for some time to come.
PAUL COCHRANE is the Middle East correspondent for International News Services and a regular contributor to the UK Energy Institute’s Petroleum Review