Nabucco, or is the Great Gas Game turning into a waltz?

It seems as though, whenever things are relatively quiet in the energy world, which they currently seem to be, then all one has to do is type Gazprom into Google search box, and there will be some interesting snippet.

And lo, it appears that Gazprom is looking into a take-over one of the Hungarian gas pipeline networks. Now that is not what the initial part of the post says, where it notes that the Hungarians are switching their gas purchases from a company (RosUkrEnergo) (RUE) that purchased Russian gas through Ukraine, to a company known as Rosgas AG. As part of the fallout from the January dispute between Russia and Ukraine RUE lost that business, and now Hungary has found a new middleman, Rosgas.

The immediate suspicion is that RosGas AG is yet another in a long line of shadowy intermediary companies created by Firtash and Gazprom. However, in the case of RosGas this may mask a possible attempt by Gazprom to cut gas supplies to Firtash's Emfesz, as a precursor to a company takeover - vastly increasing its share of the Hungarian domestic gas distribution network.

This becomes of some importance when one looks at the relative prospects of the two alternate paths for new gas to reach Western Europe – South Stream and Nabucco. South Stream is being increasingly pushed by Gazprom. The pipeline will bring gas under the Black Sea, and pass through Serbia and Slovenia before reaching Austria. However Eni, who is a 50% partner with Gazprom in this stage of its development, is upset that Gazprom is keeping it out of the negotiations with Serbia and Slovenia. Both countries are anticipated to sign agreements with Gazprom in the near future, without Eni, for gas supplies from South Stream.

And this may be where Hungary comes in, since the competing Nabucco pipeline goes through Hungary to get to the Austrian hub. So that if Gazprom controls the Hungarian pipelines, and can stop competitors’ gas flowing through them (a fact they used to get TNK-BP out of the rich Kovytka field after TNK-BP had developed it.) It is yet another couple of nails in the Nabucco coffin.

Earlier this week, with a fanfare celebrating the coming signature of the Nabucco agreement to run gas through the pipeline across Turkey it looked as though the pipeline was moving rather rapidly forward. However, buried within the story is the backing off of European funding

The European Commission is proposing to scale back its support for the Nabucco project to 200 million euros ($268 million) from 250 million euros, Tarradellas said in February. The aid would be channeled through the European Investment Bank.

At the same time, the last paragraph is interesting.

Friday's statement, signed by leaders of the EU, Azerbaijan, Georgia, Turkey and Egypt, also said the EU and Egypt should "agree on specific projects in developing Egypt's gas reserves and export potential for the EU." It said it was signed "in the presence of the representatives of Kazakhstan, Turkmenistan and Uzbekistan."The statement also called for a memorandum of understanding on energy between the EU and Iraq "as soon as possible." Barroso said a preliminary energy accord with Iraq was "imminent."

There are nuggets in that paragraph – first the pipeline cannot be effective without the gas from Kazakhstan, Turkmenistan and Uzbekistan. But none of them signed the document. Further Azerbaijan does not think that the project is feasible without Turkmenistan. The Turks will get paid for their trouble

The Turkish government has been driving a hard bargain, insisting on collecting a "tax" on the gas being pumped and demanding 15 percent of the transit gas at discounted prices. These requests have been rejected by the European Commission, the executive branch of the 27-nation bloc, delaying the 9 billion-euro project. More than half of the pipeline is to be located in Turkey.

But getting them on board helps negate the pressure that Russia (read Gazprom) is applying to discourage the “stans” from selling Nabucco their gas.

So as steps in the Great Game you could say that Europe took the first by planning Nabucco, then Russia took the second by stopping an adequate supply availability through pressure on Turkmenistan etc. Europe now gets the third, since with the pipeline running through Turkey they can (if politics allows) run connections into Iran, Egypt and Iraq. And before the step is completed Russia moves to step on their toes and gain control of the Hungarian section, thereby taking the fourth.

With Austria involved, maybe this part of the game is turning into a waltz – but with constantly changing partners - we shall see.

P52. Pick Points

Half-a-dozen or so stories of interest:

With OPEC coming up on their next meeting this Sunday, I suppose it is time to guess whether or not they will make another production cut. The latest thought seems to be that they won’t. Though not all agree, and prices did dip a little Tuesday, back to $45.71. The EIA have forecast a decline in demand of almost 1.4 mbd, down around 200,000 bd over earlier forecasts. They see global demand dropping to 82.47 mbd, but they also see prices remaining lower, at slightly below today’s prices. They project natural gas at around $4.70 per kcf. We’ll just have to wait for the TWIP tomorrow to give us a little help to make up our minds. But these seem low.

To try and encourage demand Russia is dropping their export duty from $15.73 per barrel to $14.73 or more (depending on grade). Troubles in their oil patch are such, however, that the head of the oil-rich Bashkortostan region may be in trouble, and soon out of a job. The do have an agreement to run the Hungarian section of the South Stream pipeline, with a gas storage facility also being provided by the time it comes on line in 2015. (That date keeps slipping). Croatia is hoping to put a pipeline in place that would allow it to get its supplies through Hungary. Croatia uses 113 billion cu.ft. a year, but produces 60% of that in country. The rest comes from Russia.

There is talk of an LNG terminal in the Adriatic to help, and it is on the list that Exxon Mobil is anticipating for this year. The other is at South Hook in West Wales, and that is within weeks of completion. Meanwhile the new terminal in Rio de Janeiro will receive its first cargo today (March 11). It is coming from Trinidad and Tobago. The roughly 5 million cu ft tanker is on a test run to ensure that everything works well, before settling into production later in the year. While the terminal can produce up to 700 mcf of natural gas a day, the current thought is that may not be needed as much this year, as the water levels are relatively high, and Brazil uses a lot of hydro power. GDF Suez just brought one new plant at 241 MW on line last month. Brazil is one of more dependent countries on hydro-electricity with over 600 dams. and is pressing ahead with two more projects. Having seen power cuts in 2001, the government is determined that won’t happen again.

It isn’t quite that moist in the Middle East, where sandstorms have shut down ports in Kuwait and Saudi Arabia, they should end today. Not that this helps Japan, since Saudi Aramco continue to cut the volumes that will be shipped there in April. Because of sluggish demand, there was some thought that there might be another 15% cut in supply, but the Japanese think this unlikely.

There has been a bit of talk about coal reserves over at The Oil Drum, and Euan has just put up a post on Carbon Capture and Storage (that’s CO2). Some of the past debate has been about reserves and resources, and that was part of the reason for my Sunday post, since technology can change resource to reserve. Well so, apparently can state government. Some W. Va. Landowners got a shock in January when the coal under their property was reclassified from resource to reserve. This added some 3.7 million acres of reserve over last year, and with a tax bill of $100 an acre, both appeared to give the state a windfall, and unsuspecting homeowners sticker shock. The reassessments are being reviewed.

Well while the rest of the world waits to see how demand for more conventional fuel is going, up in Alaska the Iditarod is underway. And our trees are in bud, and crocuses came up in the year last week. Spring is a coming!!

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.