Insider View: Interview with Nabucco Managing Director Reinhardt Mitschek

14 March 2008
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Reinhardt Mitschek, Managing Director of Nabucco Gas Pipeline International, sat down with independent journalist and CEPA Associate Scholar Neil Barnett in Vienna last week to discuss the road ahead for the Brussels and Washington-backed Nabucco pipeline.

The Nabucco project is intended to bring 31 billion cubic meters (bcm) of gas from the Caspian Sea and Middle East via Turkey and the Balkans to Austria. Nabucco Gas Pipeline International is an equal partnership between six energy companies – OMV (Austria), Botas AS (Turkey), MOL (Hungary), Transgaz SA (Romania), Bulgargaz Holding EAD (Bulgaria) and RWE AG (Germany). In addition to his role as Managing Director of the pipeline consortium, Mr. Mitschek is also Senior Vice President for gas logistics at OMV Gas International.

On the question of the pipeline’s timeframe, Mr. Mitschek remains optimistic, saying “We expect the final investment decision later in 2008 or early 2009, and construction to start in 2010 and deliveries of gas to start in 2013. During 2009 we will develop procurement for construction, close loans and finalise financial structure. This timeline is achievable and it’s synchronised with the Shakh-Deniz 2 field in Azerbaijan, which comes on-stream in 2013.”

Such optimism seems to fly in the face of recent developments that have reinforced doubts over Nabucco’s viability in some quarters. Earlier this year, two Nabucco partner countries, Bulgaria and Hungary, signed up to Gazprom’s competing South Stream pipeline. Meanwhile, doubts exist over the volumes of gas that can be contracted to fill Nabucco.

Mr. Mitschek is not discouraged, however. “Countries like Bulgaria are on the crossroads of major gas streams and are natural infrastructure hubs. I see no reason for Bulgaria not to engage in two projects. South Stream means diversification of transit routes, but it means substituting one route for another, but not necessarily with fresh gas. Nabucco means new gas, no substitution. Since all existing supply contracts for European buyers will need to be prolonged, there will be a need for Nabucco and other projects above and beyond that.”

Equally, he dismisses concerns that current supply contracts for 8 bcm are inadequate for the 31-bcm pipeline. “There is lots of doubt from competitors that we will not succeed. But you have to consider that Central Asia and the Middle East is the gas richest region in the world, which makes 30 bcm entirely realistic.”

He added, “Thirty-one bcm is the technical maximum capacity of the pipeline, but that is not the quantity we need to break even. We expect to start with 8-10 bcm from Azerbaijan and perhaps some from Russia through the Blue Stream [Russia-Turkey] pipeline, which is not under full load. There are more and more intensive discussions with Azerbaijan and Turkmenistan. I would not exclude having Turkmen gas in Nabucco from day one. In the long term I’d expect Egypt to contribute 3 to 5 bcm, plus further volumes from Iran and Iraq.”

“Remember that since there are lots of written gas-supply MoUs between Russian and Turkmenistan and Kazakhstan, which mostly extend and prolong existing Russian contracts. But the volumes involved are huge – they can supply Russia, China and Europe with no problems. There are lots of reserves still to be explored and exploited.”

Importantly, he believes that obstacles to developing and contracting Iranian gas resources can be overcome. Iran holds the world’s second-largest gas reserves (after Russia), but the United States has put pressure on the Austrian government to discourage OMV and Nabucco from dealing with the country. Mitschek seemed to suggest Iranian gas will be developed one way or another, saying “It is not only OMV and Austria that are evaluating business opportunities in Iran, both for pipelines and LNG. If Europe will not develop these resources, others will.” He explained Europe’s supply predicament: “Security of supply is the hot topic in Europe. We expect Europe’s consumption to increase from 500 to 700 bcm by 2025, at the same time as European production declines. We will have to import 200 bcm more than today – that’s [equal to] seven Nabuccos, or three Nabuccos plus three or four LNG terminals.”

Mitschek appeared ready to entertain the possibility of Iranian gas in the future, saying, “We would like to explore further supply options and develop our portfolio. We do not exclude any opportunity.”

RWE joined the Nabucco consortium in early 2008, becoming the sixth partner, yet there is still room for a seventh. Gaz de France has expressed interest and recieved Romania’s backing. However, Turkey is known to strongly object to the possible French candidate because of the two countries’dispute over the historical Armenian question. Mr. Mitschek leaves the door open for another partner: “Now that we have closed the RWE deal, we have one or two other additional companies interested in joining, but for now we have no concrete proposal for a seventh partner. However, the shareholders do not consider the shareholdings totally finalised, so if a seventh partner comes up with a concept that adds value, and if the existing six agree, we may have a seventh.”

What is clear is that, given the timeline above, crunch time is fast approaching for Nabucco. A defining question will be whether the consortium partners agree to the final investment decision in the next year – and future access to Iranian gas fields could be a factor in such a pronouncement. Irrespective of Iran, an investment decision could well be the deciding factor in sustaining international credibility for the project. And this, in turn, would encourage more suppliers to commit their sought-after gas to the pipeline.

 

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