South Stream – Pipeline to Nowhere?

Turkey was quick to clinch a deal with Moscow on building a new subsea gas pipeline and importing more natural gas from Russia

Turkey was quick to clinch a deal with Moscow on building a new subsea gas pipeline and importing more natural gas from Russia

By Svetlana Kristallinskaya, March 10, 2015

Eight years after announcing the South Stream project, Gazprom abandoned construction of the pipeline, but not the plans to supply gas to Europe. Originally, Gazprom had been ready to deliver gas to European customers’ homes. Now, however, the importers of Russian gas in the European Union will have to solve the issue of delivery themselves. Experts believe all this is part of a battle for control over Ukraine’s gas transportation system and forecast lengthy negotiations.

The history of the project envisaging construction of the South Stream gas pipeline linking Russia and EU countries dates back to 2006, when Gazprom and Italy’s Eni signed a strategic partnership agreement that provided an opportunity to Gazprom to directly deliver Russian gas to the Italian market starting from 2007. The agreement also provided for the extension of contracts to deliver Russian gas to Italy by 2035. Since 2006 was marked by yet another crisis in Russian gas transportation via Ukraine, it was expected that the South Stream would be partially filled with gas currently flowing through Ukraine, which is rapidly becoming less friendly to Russia.

Last October, Russian President Vladimir Putin hinted at the possibility of the project’s shutdown, adding that Europe didn’t want the pipeline to be built. “The South Stream can’t be executed unilaterally. It’s the same as love – it can be happy only if there are two parties in this wonderful process,” said the president. “All the same, we can’t unilaterally execute a project worth billions of dollars (approximately 16 billion euros – OGE), if our partners are still speculating whether they need this project or not.”

Having received no positive signals from the European Commission, Putin gained Turkey’s support, pledged to Istanbul that Russia would supply gas at discounted prices, and on Dec. 1 publicly announced that Russia was scrapping the South Stream project. “Under these circumstances, Russia can’t continue to execute the project. It’s high time we start building the offshore section of the pipeline in the Black Sea, but we can’t launch construction before we obtain a permit from Bulgaria, and it would be really absurd to begin building the pipeline offshore, approach the Bulgarian coast and stop there,” explained Putin.

However, Russia blames the European Commission, not Bulgaria, for piling pressure on the country which had been supposed to be the first to “accept” the South Stream.

And still, Gazprom doesn’t plan to waste 4 billion euros that had already been invested in the onshore infrastructure in Russia for delivery of the planned quantities of gas via South Stream. “All these investments will be in demand during the execution of the project to build an offshore gas pipeline to Turkey, so we’ll make the best use of them,” Gazprom CEO Alexei Miller said.

A little earlier, Gazprom nodded to Turkey’s request to boost throughput capacity of the Blue Stream subsea gas pipeline (linking Russia and Turkey via the Black Sea) from 16 to 19 billion cubic meters of gas per year. “Taking into account Turkey’s growing