Bulgaria and Romania have over the course of the summer been setting down their markers as regards the Nabucco and South Stream pipeline projects in an on-again, off-again manner. What they finally decide may determine which pipelines from the South Caucasus and Turkey get built where in Southeast Europe. Major investment decisions are also on the line in coming months. It is consequently little exaggeration to say that the next year, if not the next half-year, will set the main lines of the blueprint for Caspian/Black Sea hydrocarbon development for the better part of the oncoming decade.

BACKGROUND: In the beginning of 2008, Bulgaria and Russia signed a preliminary agreement on the South Stream pipeline. In July 2009, parliamentary elections in Bulgaria, the center-right Citizens for European Development party won almost half the seats, and Boyko Borisov became prime minister. He thereupon suspended Bulgaria’s implementation of three Russian-sponsored projects: the South Stream gas pipeline, the Burgas-Alexandropolis oil pipeline, and the Belene nuclear plant. When Borisov said earlier this year that Bulgaria would not participate in South Stream because of environmental issues, Gazprom announced in June that it would study running the pipeline through Romania instead. Borisov subsequently reversed his decision and in mid-July, Bulgaria and Russia signed a road map for a feasibility study of the planned Bulgarian section.

In mid-June, a high-level Romanian delegation travelled to Moscow to hold talks with Gazprom and agreed to a feasibility study for a Romanian segment of South Stream, including a feasibility study for underground gas storage facilities in the country, which will exhaust its own reserves in the next ten to fifteen years. Gazprom vice-president Aleksandr Medvedev paradoxically told the press that this accord did not signify the exclusion of Bulgaria from South Stream. Then in July, Sofia agreed that Nabucco could be built on its territory, without officially excluding South Stream.

Early this month, the Bulgarian minister of economy, energy, and tourism Traicho Traikov began to actively promote the construction of a 256-mile pipeline through Bulgaria. That pipeline would become Nabucco’s first actually constructed leg, and it is planned to use US$ 260 million from an EU economic recovery fund for the purpose. As for Bulgaria’s own natural gas needs, these are relatively modest. The country has already contracted to receive 1 billion cubic meters per year (bcm/y) from Azerbaijan by compressed natural gas (CNG) technology from the Georgian coast. If the technology works over such a maritime distance (it has never been tried before) in a cost-effective manner, import is eventually foreseen to increase to 8 bcm/y. Such a quantity would in effect cover all of Bulgaria’s gas import requirements. In addition, British firms have this summer reported discovering gas deposits on Bulgarian territory.

IMPLICATIONS: During this whole period a propaganda war of press leaks has been ongoing over the leading German energy firm RWE’s participation in Nabucco, where RWE was allegedly considering joining the South Stream consortium. Gazprom offered RWE such participation but, after German elite opinion mobilized against the attempt to seduce the company away from the Nabucco project, RWE “clarified” that it had in fact never done so. RWE is also exploring for offshore gas deposits in the Caspian Sea under contract with the Turkmenistani government and has reported detecting deposits. It is set to find a way—whether by pipeline, CNG technology, or liquefaction—to see that gas eventually find its way to the western coast of the Caspian Sea, where it can enter the Azerbaijani pipeline system and make its way to Europe via Nabucco.

Earlier this year, Turkey postponed its investment decision in South Stream until the autumn and set up a bilateral Grand Commission on economic cooperation with Russia presided over by prime minister Recep Tayyip Erdogan and president Dmitry Medvedev. (Cynics suggest that Erdogan simply wants more construction contracts for the Sochi Olympics.) The final investment decision for Nabucco, and the Shah Deniz Two development in Azerbaijan’s offshore deposit that will feed it, will also come towards the end of the year: this is why the next six to twelve months are so crucial for the rest of the decade.

Moscow was able to ease the road for Nord Stream’s construction by lobbying Brussels, via Berlin, to have the EU designate the pipeline as a Trans-European Network (TEN). European financial centers took this to represent a political seal of approval, even though many other TEN projects languish for lack of investment. But in consequence, the Baltic Sea littoral countries gave political approval to Nord Stream’s subsea route through territorial waters and economic zones without obstacle. A similar evolution is what Russia had in mind for South Stream in making its overtures to RWE.

Gazprom’s Italian partner in the South Stream consortium, Eni, is lobbying the Italian government in this regard. The company was successful in convincing Brussels to underwrite the Blue Stream pipeline (also a Gazprom-Eni project) a decade ago when Romano Prodi was president of the European Commission. For the moment, however, the EU is being run by Belgians: Herman Van Rompuy, the incumbent president of the European Council, a new post created by the Treaty of Lisbon; and Yves Leterme, prime minister of Belgium, whose country is president-in-office until the end of the year within the “troika” that forms the EU Council presidency; and the new High Representative for foreign and security policy is a Briton, Catherine Ashton.

CONCLUSIONS: As Central European capital rushes eastward, it is difficult to imagine that the Kremlin is unaware that the successful deployment of both Nord Stream and South Stream would resemble nothing less than a geo-economic equivalent of the double envelopment (“pincer movement”) military maneuver first known to be executed by Hannibal at the Battle of Cannae. This analogy illuminates why the next six to twelve months are especially crucial. It is because the success of the military maneuver depends upon the coordinated simultaneity of the two arms of the pincer surrounding the army being enveloped; and Nord Stream is well under way by now.

It is not even an exaggeration to draw the further analogy that the Russian energy-industrial complex’s forays into East Central Europe—such as Surgutneftegaz’s unsuccessful attempts to acquire control over the Hungarian firm MOL and Gazprom’s successful attempt to turn the Baumgarten gas hub into a 50-50 joint venture with OMV—represent the setting-out of a marker for the meeting of the pincer’s two arms, one from the Baltic Sea through Germany in the north, the other from the Black Sea through the Balkans.

Although there are limits to such analogies (the Nord Stream terminal is on Germany’s Baltic coast), nevertheless Baumgarten enjoys the status of a distribution center for both Nabucco and South Stream. Yet South Stream’s greatest deficiency is that it has not yet even accomplished a feasibility study, whereas Nabucco did so quite some time ago; and while the partners in Nabucco are lined up and is ready to go, South Stream still does not even know where on the western coast of the Black Sea it will make landfall.

AUTHOR’S BIO: Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts nstitute of Technology and The University of Michigan, has researched and taught at uiversities in the United States, Canada, France, Switzerland, and Russia. Now enior research fellow in the Institute of European, Russian and Eurasian Studies, arleton University, Canada, he also consults privately in a variety of fields.