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Nabucco Faces ‘Terminal Blow’ as Hungary Woos Russia Link

The Nabucco natural-gas pipeline project to ship Caspian fuel to Europe may have been dealt a “terminal blow” as Hungary seeks to attract a rival link planned by OAO Gazprom, Russia’s gas export monopoly.

Mol Nyrt., the country’s largest company by market capitalization, is leaving the 7.9 billion-euro ($10.4 billion) Nabucco project, Hungarian Prime Minister Viktor Orban said yesterday in Brussels.

Nabucco is a joint venture of Mol, Germany’s RWE AG, Vienna-based OMV AG, Bulgargaz EAD, Romania’s Transgaz SA and Ankara-based Boru Hatlari ile Petrol Tasima AS. Backed by the European Union, it has faced repeated delays after struggling to secure fuel sources. It may be scaled down and linked up with the Trans-Anatolia Pipeline, known as Tanap, at the EU’s southern border, Nabucco Managing Director Reinhard Mitschek said last month.

“Mol and Hungary have a link function due to their geographic location, so should Mol really bail out, this would be a potentially terminal blow to Nabucco,” Philipp Chladek, an oil and gas industry analyst at Bloomberg Industries in London, said today by telephone.

South Stream

Orban’s comments come less than a week after the Hungarian leader met with Gazprom Chief Executive Officer Alexey Miller in Budapest to discuss South Stream, which according to Gazprom “meets the strategic interests” of both countries.

“We would like to see a South Stream which is related to the territory of Hungary,” Orban said yesterday. “It’s far better to have it running through the country than avoiding the country.”

Mol didn’t approve Nabucco’s 2012 budget “because of the uncertain costs and gas sources and with the current structure and project management the implementation of the Nabucco project is not secured,” the company said today in an e-mailed statement. “We believe in the South Corridor concept, that could eventually also include a re-considered Nabucco.”

Nabucco has “no indication” Mol will leave the group, spokesman Christian Dolezal said yesterday by e-mail.

IMF Loan

Orban made the comments in Brussels, where he is meeting European Commission President Jose Manuel Barroso to revive bailout talks. The commission has blocked Hungary’s request for an International Monetary Fund loan over concern that Orban’s concentration of power in the past two years undermined the independence of state institutions including the central bank. The prime minister last month likened the EU to Soviet oppressors and has compared his resistance to its demands to a “freedom fight.”

“This move by Mol is not going to endear Orban to Barroso, and will further undermine the already difficult relationship this government has with Brussels,” Mujtaba Rahman, a New York-based analyst at Eurasia Group, said per e-mail today.

The Nabucco agreement was “with the Hungarian government and it has nothing to do with” Mol, Marlene Holzner, an EU spokeswoman, said today in Brussels.

“Nabucco is a private project,” Orban said today. “So it’s a company decision. It’s not the authority of the government.”

‘What Alternative’

Hungary currently gets more than 80 percent of its gas from Russia and Orban said links with Slovakia and Croatia may be alternatives to Nabucco as the country seeks to reduce its dependence.

The nation “will have to diversify its gas sources, so the question arises, what alternative will Hungary seek instead of Nabucco?” Chladek said. “It could only be one of the competing projects, and thus Nabucco may be able to re-enter through the back door by teaming up with one of the rival pipelines.”

BP Plc and its partners in the Caspian Sea Shah Deniz gas field plan to make a final decision on an export route to Europe by the middle of 2013. The group will choose between Nabucco and the South-East Europe Pipeline, or SEEP, by the middle of this year. BP proposed SEEP. Shah Deniz may hold as much as 1.2 trillion cubic meters of gas.

The Trans-Adriatic Pipeline, or TAP, and the Interconnector Turkey-Greece-Italy, or ITGI, are also vying to carry gas from the Caspian region to Europe.

“Mol’s decision may reflect the reality that Nabucco’s chances of being chosen for Shah Deniz gas shipments have diminished,” Julia Nanay, director for Russia and Caspian Service at PFC Energy, said by e-mail today. “If SEEP were chosen, Hungary could still get gas through that option. Otherwise the near-term supply source will remain Russian gas.”

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