What Did Turkey Lose When EU Lost Nabucco?

Last week, the BP-led Shah Deniz consortium rejected the Nabucco gas pipeline project’s offer to deliver Caspian gas to Europe and Turkey. The European Commission (EC) supported Nabucco as a symbol of consumer and transit country outrage toward the dominance by a few suppliers of the natural-gas market. When the EC lost Nabucco, Turkey lost its chance to show the decisiveness of transit countries in the energy market.

On June 28, the Shah Deniz Consortium, which holds the license to exploit Azerbaijan’s 16 billion cubic meters per year gas reserves, announced it had selected the Trans-Adriatic Pipeline (TAP) to bring Azeri gas from the Turkish border via Greece and Albania to Italy. Swiss Axpo (42.5%), Norwegian Statoil (42.5%) and German EON (15%) each hold shares in TAP without any involvement from transit countries such as Albania, Greece or Italy.

Turkey’s BOTAS, which holds 16.5% of shares in Nabucco, was not involved in any stage of TAP. But according to the consortium's decisions from earlier this year, TAP would join the Trans-Anatolian gas pipeline (TANAP), jointly held by Azerbaijan (80%) and Turkey (20%) to deliver Azeri gas to Bulgaria via Turkey.

In the last ten years, this TANAP/TAP pipeline formula gradually took the place of Nabucco, thanks to its effectiveness, flexibility and low cost. From the Turkish perspective, when one compares Turkey’s 20% in TANAP with its 16.5% in Nabucco, one might draw the conclusion that Ankara raised its share in the game. But this will slightly change when one considers the political dimensions of Turkey’s involvement in Nabucco.

Nabucco was the flagship of the EC’s Southern Energy Corridor Project (SECP) for multiplying the EU-27’s gas-supply conduits, currently dominated in northern Europe by Russia. Named after a Verdi opera referring to the liberation of slaves by the Babylonian king Nebuchadnezzar, Nabucco became a symbol of the liberation of European countries and Turkey from their energy dependence on Russia. Reinhard Mitschek, the managing director of Nabucco Gas Pipeline International, said, “Nabucco delivers freedom of choice to gas consumers.”

The weaknesses of Nabucco were its high cost, heavy processing and inflexibility. Six shareholders each held 16.5% in the project. Nabucco's five transit countries also each required equal power and income. In this multitude of stakeholders, the project launched in February 2002, but was only ratified in March 2010 by all the transit countries' parliaments. Then, in the period between 2010 and 2012, the project remained on standby because of its high costs.

Meanwhile, the never-ending Nabucco process has boosted Turkey’s confidence in regard to the energy-transit question. Ankara has realized its capacity to transpose the Baku-Tbilisi-Ceyhan experience to wider energy conduits. Since 2004, the Ministry of Energy and Natural Resources' strategic plans have mentioned among their top priorities the objective of being an energy hub.

During Nabucco negotiations, Turkish authorities worked on several demands from European companies, but also some from the EC. 

With its growing energy demand, Ankara at first considered Nabucco an opportunity to meet its domestic demand. Ankara pretended to use Ukraine’s strategy and to profit from preferential price rates for the gas transiting its territories. It also insisted on a right to buy, at preferential rates, 15% of the gas flowing through the proposed pipeline.

Turkey also tried to use its geostrategic position as leverage in the EU accession talks by insisting on the opening of the energy chapter as a condition for Nabucco. Turkey’s Prime Minister Recep Tayyip Erdogan said in Brussels in 2009, “If we are faced with a situation where the energy chapter is blocked, we would, of course, review our position [on Nabucco].” The EU's Nabucco negotiator responded to Turkey’s role but did not accept Turkey's condition, saying, “Nabucco is a demonstration project of Turkey's intent to join the European Union."

Even though none of these demands were accepted and the only acquisition was BOTAS' 16.5% share in the Nabucco pipeline company, Turkey signed Nabucco’s international agreements and ratified them in its parliament. This decision was made because Turkey seized on the SECP's development and Nabucco as a chance to show the decisive role of transit countries and become a decision-maker instead of decision-applier in the Eurasian energy market. Nabucco had the distinction of being a project proposed in partnership with consumer and transit countries and might be considered a tentative initiative to redefine the distribution of power in the energy market.

While Nabucco was still an option, the Russian energy monopoly Gazprom developed the South Stream and the Blue Stream II gas-pipeline projects, running from Caspian offshore fields to the Balkans via the Black Sea. This raised the question of whether Brussels and Moscow were competing or cooperating for European energy security.

This bi-polar tension between the main supplier, Russia, and the main consumer, Europe, changed slightly when BP, the leader of the Shah Deniz consortium, released its first decision regarding the SECP, selecting TANAP as the main pipeline. TANAP's shareholder structure consists of Turkish BOTAS and TPAO with 20% and Azerbaijan's SOCAR with 80%. In January 2013, BP signed a “framework” accord to take 12% of shares in TANAP, as first announced by Azerbaijan and Turkey on Dec. 26, 2011.

Last year, within TANAP’s announcement, BP also classified as "not feasible" the Interconnector-Turkey-Greece-Italy (ITGI) and the initial Nabucco proposal. The EC, which had already financed 50% of the cost of technical studies and 29% of the construction costs for the ITGI project, accepted its sunk cost.

When Turkey and Azerbaijan announced in December 2011 their joint project, TANAP, Nabucco decided not to compete with TANAP. Moving out of Turkish territories, it instead promoted its own tiny version, Nabucco West. Nabucco West was planned to run from Turkey’s Bulgarian border and continue through Europe by way of Bulgaria, Romania, Hungary and Austria. Nabucco’s move was not successful — the Shah Deniz consortium choose TAP.

On June 28, the EC welcomed the suppliers’ choice of TAP and classified Nabucco as "not feasible" — i.e., the symbol of consumer and transit country outrage towards a few suppliers' dominance of the natural-gas market. With this failure, transit countries like Turkey lost an opportunity to redefine the implicit rules of the energy sector, where transit countries are considered insignificant or inoperative. Indeed, the International Energy Agency has never dedicated a single department to transit countries, a situation that with this decision seems unlikely to change anytime soon.

Olgu Okumuş is a lecturer in energy diplomacy at Sciences Po, Paris, and the director of strategy development at LEO Advisors. She is also a Ph.D. candidate at Sciences Po, Paris, where her research focuses on Turkey’s energy-transit policy.