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Status South Stream Pipeline

south_stream
Many people think that the current troubles with the South Stream pipeline are the result of the standoff over Ukraine and that the US had a hand in halting the construction. That is not (entirely) the case. Europe had reservations as early as 2012, when the kick-off ceremony took place:

putin-south-stream[source]
Ceremony celebrating the start of the South Stream pipeline construction, December 7, 2012, led by Wladimir Putin.

Or even earlier:

[euractiv.com] – Oettinger declines invitation to South Stream opening (Dec 7, 2012)

Observers note that Gazprom may have put the cart before the horse, as a final investment decision is not even in sight… Radio Free Europe cited experts as saying that a final route has yet to be submitted to Brussels and likely won’t be approved for at least another year… Jonathan Stern, head of the Natural Gas Research Programme at the Oxford Institute for Energy Studies, is quoted as saying that Gazprom hasn’t yet ordered pipes or organised the lay barge for the pipeline and “cannot start laying the offshore section until 2014 [at the] earliest.” The European Commission has repeatedly said there was no final investment decision on South Stream, and that the EU executive has seen no blueprint of the project… The construction of South Stream in Bulgaria will begin “around July 2013”, Sofia announced. Bulgaria say the total length of South Stream across the country is 535.7 km, the diameter of the pipe is 140 cm, and the price tag of the construction on Bulgarian territory is of €3.3 billion… Gazprom’s aim of building South Stream is to bypass Ukraine, the main gas pipeline hub to the EU.

It should not be forgotten that North Stream, the pipeline between Russia and Germany, was the result of a bilateral agreement between Wladimir Putin and Russophile and closet anti-American German chancellor Gerhard Schröder. The EU however has been skeptical all along against even more European dependency on Russia for fossil fuel supply, although it is very well possible that this policy was dictated to a large extent by Washington.

[europeanenergyreview.eu] – Speech by Günther Oettinger on South Stream (May 25, 2011)

The European Commissioner for Energy Günther Oettinger held a speech about EU-Russia energy relations and the South Stream project in Brussels on 25 May. He said, among other things, that South Stream is not the EU’s top priority, but that the Commission will not make unreasonable demands to thwart the Russian projectThe Russian Federation is the most important energy partner of the European Union. This will remain so in the future… EU is by far the largest trading partner of Russia. 47% of all Russian imports are from the EU and the EU accounts for about 75% of foreign investment in Russia… imports from third countries will increase until 2030 or 2035 due to the depletion of the EU’s own reserves. This includes imports from the Russian Federation… Neither the EU’s diversification objectives nor Russia’s diversification efforts will influence the privileged energy relationship between the EU and Russia… In the Southern Corridor we look at new routes – pipelines such as Nabucco, ITGI, TAP and White Stream – and LNG projects. We have a series of possible supplier countries, with whom we will have direct contacts, for gas supply, such as Azerbaijan, Iraq and Turkmenistan, as well as the Gulf… Europe clearly has preferences; we need to diversify to make sure that the risk of total gas cut-offs is avoided and the ongoing, persistent risk of dependence– is minimised… the EU wants direct contacts with Caspian producers through new supply routes and pipelines… Turning towards South Stream: it is not our top priority, but we recognise its value, in particular for Russia, for diversification of routes… We will support South Stream in its administrative processes in the EU, and we will not impose any unreasonable or unjustified level of administrative or regulatory requirements. We will act as fair partners… As you know I am also interested in a balanced trilateral EU-Russia-Ukraine solution on future gas flows to the EU.

Comment: Oettinger’s speech makes sense if you see him for what he is, an America-oriented liberal with no intention of intensifying political cooperation with Russia. In his eyes South Stream is of Russian interest, in contrast Europe seeks to diversify its supply from the Caspian basin and the Gulf. But now, three years later in 2014 we can safely say that both options are illusory: Nabucco is as good as dead and the Gulf region is rapidly turning into a war zone and probably will become fundamentalist. Europe will have great trouble matching supply and demand. For this reason alone, the South Stream construction should proceed with the utmost speed.

[reuters.com] – Russia says South Stream gas pipeline is going ahead: Interfax (Jan 20, 2014)

Russia and the EU have agreed on further cooperation on a route that will satisfy Europe with 15% of natural gas needs by 2018… Oettinger met with Russian Energy Minister Aleksandr Novak in Moscow on January 17, and the two agreed to create a commission to address technical and legal details of the gas pipeline, which will stretch 2400 km, and by 2018 will have the capacity to deliver 64 billion cubic meters of natural gas to Europe… The EU’s ‘Third Energy Package’ regulations aim to protect third party access to pipelines, and as a result prevents Gazprom from both owning the pipeline and the product shipped through it… Separately, the EU has launched an antitrust investigation into Gazprom, and the company could face a fine of up to $15 billion for unfair pricing, and its over-dominant role in the European gas market… The South Stream pipeline will help ensure the reliability of gas supplies to Europe, as it will bypass politically unstable Ukraine… Gazprom thinks the $45 billion South Stream project will pay for itself in 15 years, as the company will save on expensive Ukrainian transit fees, and will also have a brand-new transport grid, instead of Ukraine’s aging pipes.

But on February 18, the EuroMaidan clash began, resulting in the coup-d’état and ouster of president elect Yanukovich. And beginning of March the Crimea crisis broke out. The EU reacted by freezing the pipeline project:

[euractiv.com] – South Stream pipeline project frozen over Crimea crisis (March 3, 2014)

Speaking at the EPP Congress in Dublin, EU Commissioner for energy Gunther Oettinger said that the European position in dealing with the Ukrainian crisis should not be ‘too offensive’ towards Russia. “We should offer them (Russia) an ongoing economic partnership, but warning them what they are doing is not acceptable.’, Oettinger said… “I won’t accelerate talks about pipelines such as South Stream for the time being. They will be delayed,” Oettinger told the German daily Die Welt.

Then in August things are moving again, probably as a result of the EU accepting the fait accompli in the Crimean question and the rapid deteriorating situation in the Middle East:

[ria.ru] – South Stream May Exist, But Under EU Rules – EU Energy Chief Oettinger (Aug 28, 2014)

The European Commission insists that Russia’s South Stream gas pipeline operates in the European Union exclusively under European rules, EU Energy Commissioner Gunther Oettinger said Thursday… The European Commission is trying to hamper the project saying it violates the EU’s Third Energy Package, which stipulates that the pipelines in the European Union cannot belong to the natural gas extractors.

Meanwhile Serbia, not yet an EU-member and as such EU rules do not yet apply, is pressing ahead with the project on its own territory:

[itar-tass.com] – Oettinger: EU cannot hamper South Stream pipeline construction in Serbia (Sep 17, 2014)

In July, Centrgaz, a subsidiary of Russian energy giant Gazprom, signed a contract on the construction of the South Stream pipeline through Serbia… The European Commission cannot hinder the launch of the South Stream pipeline construction in Serbia, a spokesperson for EU Energy Commissioner Guenther Oettinger said… In July, Centrgaz, a subsidiary of Russian energy giant Gazprom, signed a contract on the construction of the South Stream pipeline through Serbia. The construction of the Serbian stretch of the pipeline is due to start in October

Russia is pressing ahead and Europe remains reluctant. Russia does not want to become dependent on China and Europe not on Russia.

[reuters.com] – Russia says South Stream gas pipeline is going ahead: Interfax (Oct 4, 2014)

The Russia-led South Stream undersea gas pipeline is still going ahead, Energy Minister Alexander Novak was quoted as saying on Saturday, following concerns the European Union might be losing enthusiasm for the project… The project has yet to be approved by the EU, which is trying to become less dependent on Russian gas…. The European Commission has said South Stream as it stands does not comply with EU competition law because it offers no access to third parties… “The agreements which were signed remain in force. They can’t be canceled on a unilateral basis.”… “We hope that we will resume such work when the new European Commission is appointed,” the minister added.

Our prediction is that when the situation in the Middle East further deteriorates, the EU will eventually cave in and give the green light to completion of South Stream.

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