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27/09/2016

Russia confirms decision to abandon South Stream

Energy

Russia confirms decision to abandon South Stream

Gazprom, with smog. Moscow, 2010.

[Albert Alien/Flickr]

Following a statement by EU ministers who said they wanted Russia to clarify its intentions concerning the South Stream gas pipeline, Russian gas monopoly Gazprom confirmed yesterday (9 December) that the decision to abandon the project is final.

Ministers of Austria, Bulgaria, Croatia, Greece, Italy, Romania and Slovenia, as well as European Commission Vice-President for Energy Union Maroš Šef?ovi? isued a communiqué Tuesday (9 December) in which they said they had “taken note” of the unofficial nature of the announcement by Russian President Vladimir Putin to abandon South Stream, and tasked the commission to clarify the situation.

On a visit to Turkey on 1 December, Putin said the project was over and that the 63 billion cubic metres per year (bcm/y) of gas would be shipped to Turkey instead of Bulgaria, which according to the Russian leader, had obstructed the project.

>> Read: Russia says South Stream project is over

The Commission has warned Bulgaria not to build South Stream, as it considers the project to be in breach of EU laws, including legislation known as the Third Energy Package, which limits how much of a pipeline a company can own if it also controls its contents.

>> Read: Barroso warns Bulgaria on South Stream

In the meantime, Bulgarian Prime Minister Boyko Borissov met with Commission President Jean-Claude Juncker and said South Stream could be built if it complies with EU rules. For his part, Juncker said the €32 billion South Stream natural gas pipeline can still go ahead, and accused Russia of holding EU-member Bulgaria hostage when it said it had abandoned the project. 

>> Read: Juncker says South Stream pipeline can still be built

Bulgaria gets all the blame

But yesterday Russia dispelled hopes that the project could still be realised as initially planned, blaming Bulgaria.

Speaking to TV channel Russia 24’, Gazprom’s CEO Alexei Miller confirmed that the decision to abandon South Stream was final.

Referring to Putin’s visit to Turkey, Miller said that the Turkish side has been aware of Russia’s plans to abandon South Stream, but the final decision was taken during talks between Putin and his Turkish colleague Recep Tayyip Erdo?an.

“South Stream is cancelled. Bulgaria did not give a construction permit to build South Stream neither onshore, nor in its territorial waters and economic zone. This doesn’t concern the Third Energy Package, and the European Commission is not the one to blame in this particular situation. It is the Bulgarian government that did not provide us with the construction permits. Therefore, the definitive decision to cancel the project was made”, Miller said.

The Gazprom chief said Bulgaria will bear significant losses due to the South Stream cancellation. “Approximately €3bn will not be invested in Bulgaria. More than 6.000 jobs will not be created. Moreover, Bulgaria will lose its status of a transit country. For the time being, Bulgaria transits 18 bcm of gas to Turkey, Macedonia and Greece. Once the new pipeline is built, these gas volumes will go via Turkey,” Miller said.

He also said that once the new pipeline to Turkey becomes operational, the role of Ukraine as a transit country “will be reduced to zero”.

“Gas will not pass through Ukraine or Bulgaria, but will be delivered to the EU from another side. Once the pipeline reaches the EU, European consumers can pick up gas at the Turkey-Greece border. In this case, the Third Energy Package norms will not be applied to these deliveries,” Miller said. 

Southern corridor promoted as alternative

In the meantime, the Commission threw its weight behind the Southern gas corridor, a term referring to the project to bring 12 bcm/y of gas from the Shah Deniz offshore gas field in Azerbaijan, via the SCP (South Caucasus) pipeline crossing the territory of Azerbaijan and Georgia, the planned TANAP pipeline via Turkey and the planned TAP (Trans-Adriatic) pipeline via Greece and Albania and an offshore section to Italy.

The construction of TAP is due to start in 2016 and the first gas is expected to flow by 2019-2020.

Speaking at a public event dedicated to the Southern gas corridor in Brussels yesterday, Šef?ovi? called it “the top political business project” and announced that a steering group would be formed to help advance “the European part of the project”, that is, TAP.

Elshad Nasirov, vice president of Azerbaijan’s oil and gas company SOCAR, said that the Southern gas corridor was not competing with any existing project, but would supply Europe with additional gas.

Claudio de Vincenti, Deputy Minister for Economic Development, representing the rotating EU presidency, said that a major aim of TAP was to enhance energy security in the Balkan area, which is particularly vulnerable. De Vincenti said he was pleased to learn that there were increased contacts between the energy ministers of Greece, Bulgaria and Romania to connect to TAP through existing and new infrastructure.

Kjetil Tungland, managing director of TAP, also emphasised the importance of the project of a “vertical corridor” to Bulgaria which would link to TAP.

Background

On 1 December, Russia scrapped the South Stream pipeline project to supply gas to southern Europe, without crossing Ukraine, citing EU objections, and instead named Turkey as its preferred partner for an alternative pipeline.

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy [see map]. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI, and Germany's Wintershall, a subsidiary of BASF.

Further Reading