*The Nabucco gas pipeline project has been talked about for a decade. Could this be the year when arguments over funding and politics are finally resolved? Peter Taberner reports.*

Reinhard Mitschek, managing director of the Nabucco gas pipeline project, declared earlier this year that 2010 would be "the Nabucco year". Clearly, he is confident that the problems that have dogged the plan to export 31 billion cubic metres of gas a year from the Caspian region and the Middle East to Europe are on the verge of being resolved.

Named after a Verdi musical, Nabucco was first floated in 2002, a grand plan for a 3,300km pipeline costing €7.9 billion to connect Azerbaijan with Turkey, Bulgaria, Hungary, Romania and finally Austria. The reasoning behind it was to provide Europe with alternative gas supplies rather than depending on Russia.

*Intergovernmental accord*

Since 2002 the project has moved at a snail's pace because of political disputes and arguments over routing, funding and who should supply the gas. Then last year there was a significant breakthrough when the five countries involved signed an intergovernmental accord to build it, although the Turkish government ratified it only in March this year. This finally gave the pipeline the political backbone it needed.

National champions in all five countries are major shareholders in the project. These are Austria's OMV, Hungary's MOL, Bulgaria's Bulgargaz, Romania's Transgaz, Turkey's Botas and Germany's RWE.

*Support inconsistent*

Wider political support for the project has been inconsistent. The US has declared that it favours the link, but there has been little practical support. The European Union is more solidly behind the project and only recently the new energy commissioner, Gunther Oettinger, described Nabucco as "especially worthy of financial support".

However, Europe's biggest states have not been as vocal in their enthusiasm for the project as they might have been. Katinka Barysch, an analyst with the Centre for European Reform, explains: "A stronger political umbrella will be needed for Nabucco to make headway. Like the US-supported BTC [the Baku-Tbilisi-Ceyhan oil pipeline] in the 1990s, the EU needs to make it clear to all the potential supplier countries and transit states that Nabucco is a priority. The fact that the governments from the big EU countries have yet to be fully convinced that the EU should have an energy foreign policy does not help."

The Nabucco steering committee (comprising all shareholders) now meets twice a month, with the fresh backing from Turkey and the EU. Security of supply is obviously the moving force behind the pipeline, but the shareholders are keen to stress that Nabucco is a pro-European project, not an anti-Russian one.

*Finance disputes*

Engineers from the countries involved in the pipeline have met and ironed out disputes about its route. However, considerable obstacles have still to be overcome when it comes to finance. The nagging fear is that there will not be enough demand to justify the existence of Nabucco at all. OMV's head of gas and power, Werner Auli, is on record setting out just such a position.

The Commission has approved €200 million for the project, which will have to be contracted this year. But while this is a significant sum of money, it is a drop in the ocean compared with what the final bill will be. Mitschek believes he can get investment from international finance institutions, but this is a leap of faith given the current risk-averse climate after the credit crunch, especially when demand for gas is unclear. Predictably, there has been little formal interest from investors up to now.

OMV Nabucco spokesman Christian Dolezal, though, is positive about progress. "Nabucco is currently holding intensive talks with the European Investment Bank and the European Bank for Reconstruction and Development and we have also talked to credit export agencies who are interested in the export markets throughout Europe," he says.

"After the financial crises of the past two years, financial institutions are interested in commodities and Nabucco is a huge commodity that is part of the moving of goods and services around Europe. Big banks are also interested at the moment."

*Capacity on the market*

From July the project will face perhaps its biggest test when capacity is put up for sale. Half of Nabucco's capacity will be taken by its six major shareholders, but the rest will be put on the market. The level of interest from third parties will help determine whether construction starts as planned in 2011.

Research from the International Energy Association declaring that the gas market is going to be oversupplied until 2015 will not fill investors or gas suppliers with confidence. However, pipeline director Mitschek believes the timing could not be better, because the International Energy Association also says that demand for gas will increase by 1.5 per cent annually up to 2030.

The Centre for European Reform's Barysch is not convinced. "I do not know how much capacity European companies will buy in Nabucco this year," she says. "If it's not enough to get Nabucco started, will the consortium abandon the project or try again? It has been a decade in the making, it is important for RWE's and OMV's international strategies. My guess is they would try to save it."

She adds: "What happens until 2015 is not the relevant variable. I do not believe that Nabucco will be ready by 2015. What is relevant is the outlook for the 25 or 30 years after 2015."

*Supplier nations*

Where the gas will actually come from is also a controversial issue. Recent negotiations between Turkey and Azerbaijan, from where the first eight billion cubic metres of gas is supposed to arrive, ground to a halt and drilling in the Shah Deniz II gas field has stopped. Turkmenistan and Azerbaijan together are supposed to supply half of Nabucco's 31 billion cubic metre annual capacity.

Azerbaijan is also trying to recruit Iran and Iraq to provide gas, but political considerations come into this equation and perhaps explain some of the lukewarm political support the pipeline has had in Europe.

Peter Taberner is a freelance journalist.