Will RWE's Woes Be Shared By Nabucco?
German utility RWE is going through some tough times.
After its announcement Monday of a management shake-up that will see its Chief Executive Officer leave the company ahead of time, it said Tuesday that its bottom line swung to a loss in the second quarter, reduced its 2011 profit forecast and said it will reduce investment, increase savings and expand asset sales program to repair its balance sheet.
RWE is mainly the victim of Germany’s decision to exit nuclear energy and of a tax on nuclear fuel, but its financial hardship could have a wider consequence.
It could deliver another blow to the Nabucco pipeline project that, precisely because of the nuclear exit, is potentially crucial to feed Europe with more natural gas, which many experts view as the easiest and fastest fix for missing nuclear capacity in electricity production.
However, Nabucco is also very expensive –it would likely cost more than the initial estimate, already under review, of €7.9 billion– and RWE, which is the leading sponsor, said Tuesday it is slashing investments. That may mean it will have to shelve the pipeline, at least for a while.
Given also RWE’s recent agreement with Russia’s Gazprom to start talks for a gas and coal power joint venture, Nabucco’s future may not on be so rosy.
RWE’s outgoing CEO Jürgen Grossmann insisted Tuesday that Nabucco is still on track and that the planned electricity production partnership with Gazprom hasn’t changed the company’s commitment to build the pipeline. “We will continue to pursue the Nabucco project,” Mr. Grossmann said, adding that the priorities at present are securing financing and gas supplies to fill the pipeline.
If that means that Nabucco is at least delayed, the impact might not be so dramatic.
The pipeline is aiming at transporting the first gas available for European customers in the Caspian all the way to Austria. That gas–from an offshore field in Azerbaijan–would only fill one third of its capacity, forcing the project to rely on further supply sources.
No field in the Caspian or in the Middle East –Nabucco is also looking at Iraq– is likely to be available to provide gas for Europe by the end of the decade. But beyond 2020, the prospects open up.
Turkmenistan hosts the fourth largest gas reserves in the world and the European Commission –which has traditionally been very much in favor of Nabucco and of gas imports from areas other than Russia– is aiming to convince the country and Azerbaijan’s government to make a deal and build a pipeline across the Caspian.
At the same time, ten years will give Iraq enough time to build up its electricity infrastructure and production system –for which it needs gas– and will be more at ease to sell abroad. Azerbaijan might also find new resources.
By then, Europe should still need a lot of gas. It is the best fuel to use in combination with renewable energy–which the European Union is pushing hard– because utilities can switch a gas power plant on and off easily to fill in for the power vacuums created when the sun doesn’t shine or the wind doesn’t blow. At the same time, utilities will have to use gas if they want to reduce their greenhouse gas emissions because it is cleaner than coal when burned to produce electricity.
Nabucco would therefore still have time to exploit what the International Energy Agency has said it could be the “golden age of gas.”
Source: Wall Street Journal
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