Russia surges ahead in gas pipeline race

The Iraqi government yesterday rejected an $8 billion Kurdish plan to fill the Nabucco pipeline with gas for Europe, a major setback to a project designed to reduce the continent's reliance on Russian energy.

Opposition in Baghdad to the deal to obtain gas from Iraq's Kurdistan region hands Russia the initiative as it races to complete its own alternative to the Western-backed pipeline and tighten its grip on European energy markets.

"We will not allow any side to export gas from the region without the approval of the central government and the Iraqi Oil Ministry," Iraqi Oil Minister Hussain al-Shahristani said, a day after EU and Arab firms unveiled their plan to pump Kurdish gas.

The EU, which takes one-quarter of its gas from Russia, is keen to find alternative suppliers as Moscow has cut off supplies to the continent in recent years after rowing with ex-Soviet transit countries, mainly Ukraine, over price.

Russia, the world's largest energy supplier, wants to build its own routes to bypass Ukraine and has rebuked the United States and former Soviet satellite nations for backing Nabucco.

Its South Stream project, due to start by the end of 2015, moved ahead in the race by securing support from four European transit countries on Friday.

"I consider South Stream to have every chance of being realised earlier than Nabucco," Russian Energy Minister Sergei Shmatko said. "Nabucco has a range of issues which still need to be resolved: transit, the resource base and the cost of gas."

Nabucco had political backing but little gas to sell until two of its shareholders, Austria's OMV and Hungary's MOL, joined up with the United Arab Emirates' Crescent and Dana Gas to source supply from Iraq's Kurdistan.

This project could now supply enough gas to kick-start the project and supply Europe by 2014.