Europe's Gas Opera

04/04/2009 05:12 am ET | Updated May 25, 2011

By: Christian Kim

In Guiseppe Verdi's 1841 opera "Nabucco," the eponymous Babylonian king: destroys Jerusalem and takes the Jews captive; goes mad and regains sanity; then begs the God of the Hebrews for forgiveness and lets the Jews go. Apparently, someone named Europe's southern gas corridor project after this classic Italian masterpiece, perhaps in the hopes of inspiring a similarly liberating denouement for the EU's energy woes. But much like King Nabucco-who himself enslaved the Jews before granting them freedom-Europe's Russian gas shackles are a circumstance of its own making, and Nabucco will do little to change that.

In 2007, the EU consumed approximately 505 billion cubic meters (bcm) of natural gas. The Nabucco pipeline's proposed maximum throughput of 31 bcm per year would supply the EU with only about 6% of its gas requirements. Given the relatively minor contribution Nabucco would make to total gas supply and its estimated €8 billion price tag, the EU knows it would be paying a hefty premium to build a pipeline circumventing Russian soil. But if Nabucco's cost were the only issue, the European Commission would have allocated a lot more than the measly €250 million of the €3.5 billion Euro energy investment proposal it unveiled on January 28. The more serious concern is where Nabucco's gas will come from.

The U.S. State Department keeps insisting Western-friendly Azerbaijan will fill Nabucco's pipes. That would be nice but for the fact that Azerbaijan produced only 23 bcm in 2008, and its proven gas reserves of a CIA-estimated 850 bcm are not significant enough to make Baku a major gas player. The truth is, gas must come from either or both of two major sources: Iran, which boasts 27.8 trillion cubic meters (tcm) of proven reserves (15.7% of global supply, second-largest after Russia); or Turkmenistan, whose South Yolotan-Osman fields were independently appraised by a Western firm to have anywhere from 4 tcm to 14 tcm of gas (with a best estimate of 6 tcm) and represent the crown jewels of Central Asian gas. For now, Iran is an unpalatable option as long as its nuclear program remains under UN scrutiny. And Turkmen gas would have to be delivered by an underwater, trans-Caspian pipeline, which is infeasible because of the Caspian Sea's unresolved maritime boundaries--a body of water patrolled mostly by the Russian Navy.

"Whither Nabucco" is not the issue. The proposed pipeline is not a gas panacea for the EU; it is too costly, too insignificant and too riddled by a host of logistical problems. And the numbers say Russian gas is not the issue either. Pierre Noel of the European Council on Foreign Relations points out that only 6.5% of Europe's total energy requirements come from Russian gas, a figure that has not changed for the last 20 years. In addition, Russia's share of EU gas imports has been halved, from 80% in 1980 to 40% today, due to increased LNG imports from Africa and the Middle East. Of the current Russian gas imports, 86% is consumed by the original 15 EU members (47% by Germany and Italy alone), and that amount only accounts for 20% of EU15 primary gas supply. In essence, when we talk about EU dependence on Russian gas, we are really talking about Eastern European dependence.

Several opinion pieces and reports have already laid out the EU game plan for neutralizing Russia's use of energy as a political weapon: create a common EU gas market, energy policy and pipe infrastructure in order to de-politicize Russian gas; and diversify energy supply. The second suggestion is too obvious to comment on, but formulating a uniform EU gas strategy has thus far been hindered by countries such as Germany, France and Italy, who have deeply vested interests in maintaining bilateral relations with Moscow (see Total's deal with Gazprom to develop the offshore Shtokman field; Gerhard Schroeder and Nordstream; et al). Russia has been able to divide Europe for its own ends because Europe has allowed it to.

No matter what Washington may think, the Russian gas dilemma is mostly the EU's to face alone. Because gas is not as fungible as oil, the pipeline networks inextricably tie Europe and Russia together--for better or worse. Thus, dealing with Russia and formulating an effective energy policy represents the first real security issue that the EU has faced without its transatlantic partner. Although in theory all EU member states are equal, some members are more equal than others. If Paris and Berlin cannot lay down their individual interests for the greater good of Europe, the EU will continue to be vulnerable to Russian power plays.

It's not as if Brussels is without levers of its own. Russian gas production peaked in 2005, and it cannot develop the massive Yamal reserves without Western technology, which Gazprom needs to fulfill supply obligations in the future. And no matter what Moscow says about building pipelines to China, the EU is Russia's most important and lucrative market. Not whither Nabucco...but rather whither Europe.