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Prague. A natural gas glut, weaker demand and a tough financing environment in 2010 will likely slow the launch of the Nabucco pipeline, an already-delayed project aimed at reducing Europe’s dependence on Russian supplies.

The pipeline is supposed to start transporting its first gas at the end of 2014. Analysts now see that as overly optimistic given demand forecasts and the challenge of lining up supplies to fill it before financing is completed.

“Nabucco has suffered a bit from the chicken and egg scenario in that you need gas quantities to fill it which aren’t coming forward until the financing is secure,” said Jorgen Henningsen, an energy adviser to the European Policy Center. “If the project is postponed it shouldn’t be too much of a surprise because Nabucco has been a long postponement of decisions for a number of years. It has not really taken off as a full-fledged project.”

Other analysts are even more pessimistic, saying that problems in finding supplies to fill the 7.9 billion euro ($11 billion) pipeline coupled with weaker-than-expected demand over the coming years could mean the project does not get off the ground.

Susanne Nies, a senior research fellow at think tank IFRI in Brussels predicted the debate on whether to build Nabucco would last another 10 years with an accelerated push toward renewables in Europe putting the project further in doubt. “There is the gas, but the question is, who wants the gas? Look at the International Energy Agency projections. The Russian danger is more than overestimated.”

The International Energy Agency said in November the global gas market is likely to remain oversupplied until 2015 and demand will rise by an average of 1.5 percent per year in the period to 2030.

Nabucco aims to transport up to 31 billion cubic metres of gas a year from the Caspian region to an Austrian gas hub via Bulgaria, Romania, Turkey and Hungary.

The pipeline would help reduce dependence on Russia, which supplies Western Europe with a quarter of its natural gas.

But it faces rivalry from a similar South Stream pipeline project backed by Russia’s Gazprom.

The Nabucco consortium — which includes Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgaria’s Bulgargaz, Turkey’s Botas and Germany’s RWE — is confident it can start negotiations to fill the pipeline and make a final investment decision before the end of 2010.

“This is really a decisive year,” Werner Auli, OMV’s head of oil and gas, said on Wednesday.

“If the demand is not there, we will not build the pipeline,” he said, but later added there were good indications demand would be high enough.

Key for Nabucco in 2010 will be reaching a final investment decision, said Ana Jelenkovic, analyst at the Eurasia Group.

“The final investment decision could be significant if there is some strong financing behind it to get the suppliers on board,” Jelenkovic said.

The first gas — most likely from Iraq — is expected to flow through the pipeline in the last quarter of 2014, though shareholders have raised the prospect of tapping supplies from Turkmenistan and even Iran in the longer term.

Nabucco officials said last year they expected some 8 billion cubic meters of gas from Iraq’s Kurdistan in 2015, followed by a further 8 bcm from Azerbaijan. They said the rest of the gas in the later stages of the project could also come from these sources.

“Nabucco is moving forward as planned and will be realized,” Nabucco spokesman Christian Dolezal said. “We are confident that there will be enough gas for Nabucco and gas traders will be able to contract considerable quantities. Nabucco is the leading project in the southern corridor.”

While some say a gas glut could doom Nabucco, others say it makes commercial sense and will only face delays until demand bounces back.

“In general Nabucco is a very good project but it is too early for Nabucco to be introduced,” said Mikhail Korchemkin of US-based East European Gas Analysis. “

 

Reuters