Peace Pipe

June 1, 2010

   If you are going to provoke a conflict, you should know exactly why you are doing it. That sentiment can be used to understand the recent heat in relations between Gazprom and its Italian partner Eni. A couple of undiplomatic phrases by a top Gazprom manager against Eni in fact led to the quick resolution of other problems that turned out to exist. But it cannot be ruled out that this speed could be linked to both companies’ loss of interest in the South Stream project. After all, Russia now has a new best friend – Ukraine.

We Are Friends, but Our Tastes Differ…

   Gazprom and Eni became partners in building the marine segment of the South Stream pipeline back in 2007. Before then, the companies had worked together to build the Blue Stream pipeline along the floor of the Black Sea and no-one at that time doubted their mutual love or the strength of their relationship. Moreover, the Italians purchased a few interesting gas fields at an auction of YUKOS assets, which they later sold to Gazprom, thus freeing the Russian monopoly of possible, future legal risks.

   This cooperation was cemented by the very public and long-time friendship between Russian Prime Minister (and previous president) Vladimir Putin and the head of the Italian government, Silvio Berlusconi.
However, “friends are friends, but our interests differ”, and business interests butted into the need to let go of romantic ideals.
First, during the CERAWeek conference in Houston in March, Eni CEO Paolo Scaroni made a public proposal to join the South Stream construction project with the competing project (at least in terms of route and support from the EU), Nabucco.
Scaroni stressed that Europe needed to diversify its routes and sources of gas supplies; after all, any commercial dispute between Russia and Ukraine could lead to disruptions in the supply of gas to Europe and bring countries in Eastern Europe “to their knees,” as a number of them are 100-percent dependent on Russian gas imports.

   The head of Eni identified South Stream and Nabucco as routes that could meet this goal and noted they were not alternative routes to each other, but rather complementary. Scaroni emphasized the significant capital needed for both projects and pointed out that one of the world’s largest gas producers was a shareholder in South Stream while not participating in Nabucco and at the same time highlighted the fact that Nabucco included large European gas consumers among its shareholders.

   “If the partners decided to join these two gas pipelines along a segment of the route, they could lower the capital investments and operational expenses and increase overall revenue,” Scaroni said.

The Last Drop

   People were heard saying that after this, Alexander Medvedev, the deputy Gazprom head and the head of Gazprom Export, refused to give his presentation in Houston and left the conference. Further commentary by Russian officials on the proposal made by Gazprom’s foreign partner made it clear that Russia did