By Griffin W. Huschke, Mayme and Herb Frank Research Fellow
We’ve briefly discussed how energy concerns have factored into EU-Russian relations in the past, and it look like the two geopolitical frenemies will continue to circle one another for some time. For the last several years, energy analysts have been looking to the Nabucco pipeline to serve as a sort of pre-nup to the increasingly uncomfortable energy marriage between Europe and Russia. Russia provides the EU with 41% of its natural gas, yet past pricing disputes have lead to gas shut offs and made European leaders rethink the virtual monopoly on Russian supplies to the continent. The pipeline was meant to circumvent Russian suppliers and draw natural gas from the expansive fields in southern Azerbaijan. But those of you familiar with maps will notice that Azerbaijan is a long way from Europe, and there have been increasingly ominous rumors about Nabucco’s feasibility since the project began. One expert told me two years ago that the pipeline wouldn’t be feasible because of the myriad logistical, financial and construction problems that haunting the project.
Well, I hope you’re sitting down, because it will shock you to learn Nabucco is over-budget. So over-budget in fact, that it may be infeasible to continue construction. There’s also competition from other pipeline projects, like the T.A.P, and with the global economy’s tepid recovery, the projects private backer’s aren’t looking forward to shelling out a couple billion extra euros to keep the project going.
But the real story here is that the EU is letting economics trump politics—for now. At a time when most EU governments are facing severe budget shortfalls, leaders are willing to put up with Gazprom’s occasional antics while they tend to domestic issues. But in the past, Russia has always displayed a knack for reminding the EU why it needs to diversify it energy supplies. For example, in 2009, Russia was seemingly back in good graces after they resolved their annual pricing disputes with Ukraine, which Gazprom quickly squandered by shutting off gas to Belarus.
EU decision makers and their private industry partners say they will make a decision “this year” about the fate of Nabucco. While we’ve scraped by another New Years without a pricing dispute between Russia and countries in its near-abroad, we’ll keep watching to see if the Joe Biden of natural gas suppliers can go an entire year without making another counter-productive gaffe.