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24/09/2016

South Stream pipeline project frozen over Crimea crisis

Europe's East

South Stream pipeline project frozen over Crimea crisis

South Stream in Bulgaria.

EU Energy Commissioner Günther Oettinger is to delay talks with Russia over the South Stream pipeline project, aimed at importing Russian gas via the Black Sea. His spokesperson said yesterday (10 March) that the EU executive had to take into account broader political developments, including the Crimea crisis.

"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.

Oettinger said that Europe was not facing a gas supply problem as a diplomatic solution is sought to Russian troops taking control of Crimea, following the collapse of Ukraine's government. Energy stocks are ample, and the winter is ending, taking the urgency out of heating requirements.

Russia has started building South Stream, which would bypass Ukraine via the Black Sea, to fulfill up to 15% of Europe's annual gas demand by 2018.

But the plan of state-controlled gas producer Gazprom has been frequently thrown into doubt over legal conflicts with the EU, which is seeking to wean itself off over-reliance on Russia for gas supplies.

The Commission has demanded that Russia aligns pipeline charges and access to its pipelines with the EU's internal unbundling laws and is also investigating Gazprom over allegations that it has priced its gas unfairly.

On 12 December 2013, Oettinger announced that the Commission will represent the seven countries embroiled in a legal dispute with Russia over the South Stream gas pipeline.

Six EU countries have signed inter-governmental agreements (IGAs) with Russia over South Stream – Austria, Bulgaria, Croatia, Greece, Hungary and Slovenia. Serbia, which is part of the EU-backed Energy Community, also signed a similar bilateral deal (see background).

On 4 December, the Commission announced that all these bilateral agreements were in breach of EU law.

In order to secure its customer base in Europe, Russia has already bypassed Ukraine with the construction of the North Stream pipeline, which stretches under the Baltic Sea directly to Germany. The pipeline has been operating since 2011.

Oettinger also said he supported visa and banking sanctions against Russian decision-makers and wealthy individuals, but not large-scale economic measures.

"It would be wrong to question the economic ties that have been built over decades (with Russia)," he said. "They are important for the economy and jobs in Europe and Russia."

Asked to comment, Oettinger’s spokesperson Sabine Berger said the Commission’s still aimed to have the technical group discuss the legal and technical aspects.

“The Commission is interested in a solution. We’ve also been given the political mandate by member states to do so, but of course we need to take into account the broader developments as regards the overall relations between the EU and Russia. Commissioner Oettinger was referring to the political aspect,” Berger said.

Asked about the Gazprom antitrust probe, which has been ongoing since September 2012, Antoine Colombani, spokesperson of Competition Commissioner Joaquin Almunia said that work was ongoing without any influence from the political developments surrounding Ukraine.

Positions

Gas Infrastructure Europe (GIE) published today (11 March) a statement, informing of the gas situation in Europe. GIE is an association representing the interests of European natural gas infrastructure operators active in natural gas transmission, storage and LNG regasification

“The supply of natural gas is robust in Europe. Up to now, the recent developments in Ukraine have not affected gas flows to European countries and the level of gas in stock is high for this period of the year”, the statement reads.

However, GIE says that the situation between Russia and Ukraine raises the question of European security of gas supply.

A potential disruption on the Ukrainian route could be mitigated via re-routing to other supply routes from Russia, or from other export countries (Norway, etc.), including LNG from many countries, GIE says [read more]. 

Background

South Stream is a Russian project for a 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.

Russia signed intergovernmental agreements with:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

Further Reading