One of the European Union's long-term energy policy aims has been to reduce its dependence on imports of Russian gas. A large gas discovery in Iraq's Kurdish region increases the chances that they will succeed, although big challenges remain.
One of the European Union's long-term energy policy aims has been to
reduce its dependence on imports of Russian gas. A large gas discovery in
Iraq
's
Kurdish region increases the chances that they will succeed, although big
challenges remain.
U.K.-listed oil explorer Heritage Oil said Wednesday it has discovered the
largest gas field in
Iraq
for
30 years. Investors in Heritage were none too pleased with this news--they had
been hoping for oil, which is more valuable and much easier to bring to world
markets. By mid-morning, the company was trading down 16.5%.
However, the discovery is good news for the Nabucco consortium--a group of
European utilities and oil companies hoping to build a pipeline through
Turkey
that
would bring natural gas from
Central Asia
,
Iraq
and
possibly
Iran
to
southern
Europe
.
Nabucco is not just a commercial venture, it is a play to shift the balance of
power in European energy politics. If the 3,300-kilometer Nabucco is built, it
will be the first major natural gas pipeline into central and eastern Europe
that isn't controlled by
Moscow
.
This is important because the EU fears Russian control of such a large chunk of
its gas supply. Several EU member states have also suffered severe winter gas
supply disruptions in recent years as
Russia
fought with its neighbor
Ukraine
over
transit rights.
So Nabucco has strong political backing from the European Commission, and is
treated with disdain by the Kremlin.
However, the project has been dogged consistently by doubts about whether it
will be able to secure sufficient gas supplies to justify the estimated $10.8
billion cost of construction.
When the Nabucco plan was first floated several years ago,
Iran
was
seen as a potential source of supply, but worsening relations and tighter
sanctions make that unlikely in the near term. Earlier this month,
Azerbaijan
promised gas for Nabucco, but doubts linger over whether this supply alone will
be sufficient.
Iraq
looks
increasingly important if the pipeline is to succeed.
"Nabucco welcomes the news of a major discovery at the Miran gas field in
the
Kurdistan
region of
Iraq
. The
shareholders are in negotiations with potential suppliers and this will be
considered a further advantage for Nabucco," said Christian Dolezal, a
spokesman for the Nabucco consortium.
The Miran West discovery is significant. Heritage said the field could contain
between 6.8 trillion and 9.1 trillion cubic feet of natural gas, although not
all of this will be recoverable. That is enough to supply all the countries in
the Nabucco consortium--
Austria
,
Bulgaria
,
Germany
,
Hungary
,
Romania
and
Turkey
--with
natural gas for more than a year.
Some members of the Nabucco consortium are already directly active in
Kurdistan
. The
lead member of Nabucco, Austrian oil and gas company OMV, has stakes in several
gas discoveries there and continues to explore.
"The Kurdish Region of Iraq offers world class opportunities for oil and
gas exploration and has huge untapped reserves rivaled by very few places in
the world," OMV says on its website.
OMV, or one of these companies in the consortium, may want to buy Heritage's
stake in the Miran West field, said Evolution Securities analyst Richard
Griffith.
However, while finding oil and gas may be geologically straightforward in the
Kurdish region of
Iraq
,
getting it out has been a nightmare. New oil discoveries that were developed
and ready to export in 2009 were shut down because the Kurdish and Iraqi
Baghdad governments couldn't agree on financial terms for the foreign companies
operating the fields.
Production remains shut down, but should resume on February 1 following a
settlement between the two governments. There is currently no established
commercial framework for natural gas exports from the region.
So, big political, economic and technical hurdles remain. Nevertheless,
worriers about European energy security have cause for cheer.
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