EU companies get 50% stake in Russia’s South Stream

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This article is part of our special report EU-Ukraine Relations.

Gazprom CEO Alexei Miller announced yesterday (6 September) the number of shares that EU companies will take in Russia's South Stream pipeline project, which is designed to deliver natural gas directly to Western Europe under the Black Sea.

Électricité de France (EDF) and Germany's Wintershall – a subsidiary of BASF – will each get 15%, while Italy's ENI will have a 20% stake in the South Stream project, Miller said.

Miller told Prime Minister Vladimir Putin, who had presided over the filling of the Nord Stream pipeline with technical gas earlier that day, that the companies would sign a shareholder agreement on 16 September in the Russian Black Sea resort city of Sochi, the Russian press reported.

Russia plans to launch the South Stream pipeline in 2015. The pipeline will transport up to 63 billion cubic metres of gas under the Black Sea to Central and Southern Europe, bypassing Ukraine, a difficult transit country for Moscow (see 'Background').

Gas conflict between Russia and Ukraine

With the winter season approaching, Moscow and Kyiv have reignited old tensions about gas pricing, in a row reminiscent of the trade dispute which ended up leaving parts of Europe in the cold in 2006 and 2009.

Kyiv says it wants to renegotiate contracts to secure lower gas prices and import smaller volumes. If the two sides cannot reach agreement, it said it will seek arbitration in Stockholm, Reuters reported.

Moscow has said that to revise the deal, Ukraine must either join a Customs Union with Russia, Kazakhstan and Belarus or sell its pipeline grid to Russia.

"You cannot just unilaterally break a contract," Deputy Prime Minister Igor Sechin, a close ally of Putin, told reporters at the Nord Stream launch.

The European Union is closely watching the dispute as it gets about one fifth of its gas needs from mostly Soviet-era pipelines which pump Siberian gas across Ukraine.

Legislative proposal

Meanwhile, EU Energy Commissioner Günter Oettinger is expected to unveil a proposal today to boost the Commission's powers in energy relations with countries outside the EU, and especially Russia.

European Union states will have to tell the European Commission before they start negotiating any energy deals with governments outside the 27-nation bloc and give the executive access to details of proposed accords, according to the draft proposals.

The EU executive will also for the first time be able to request the power to negotiate agreements on behalf of national governments, provided that the deals have repercussions for the whole EU, according to the draft.

The EU draft, seen by Reuters, seeks to offer both Ukraine and Russia reasons for deepening ties with Western Europe, while also stating the need to assist other supplier countries, including in the Caspian and Middle Eastern regions.

It said the EU must support efforts to rehabilitate Ukraine's infrastructure, for instance, and aim to integrate Ukraine more quickly into the energy community – which refers to EU neighbours willing to be part of the European energy system.

Turning to Russia, the European Union's aim should be "the increased convergence of the two energy markets," the draft says, calling for a joint EU-Russia Energy Roadmap to identify opportunities for long-term cooperation. Ahead of deadlines to provide consumer choice and ensure sufficient infrastructure to allow the free flow of energy across the EU, the draft text also urged for technical rules to be implemented.

"The EU should work towards the conclusion of an agreement between the EU, Russia and Belarus on the technical rules for the management of electricity networks across the Baltic region," the draft said.

Positions

Background

Nabucco and South Stream are seen as competing projects and have similar timeframes for beginning and completing construction.

South Stream is a Russia-sponsored planned natural gas pipeline. Once completed, the pipeline will run under the Black Sea to Bulgaria, with one branch going to Greece and Italy, and another to Romania, Serbia, Hungary, Slovenia and Austria. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project has been up to now Italy's largest energy company, ENI.

Another pipeline in the project phase, Nabucco, does not enjoy the favour of Russian state monopoly Gazprom. It widely resembles South Stream, but is intended to diversify the EU's pool of supplier countries, bringing gas to Europe from the Caucasus and the Middle East to a gas hub in Austria, via Turkey, Bulgaria and Romania.

The construction of the pipeline is expected to start in 2011 and the first gas is expected to flow in 2014. The pipeline will carry 31 billion cubic metres of gas per year, but this maximum capacity will only be reached in 2018.

The Nabucco consortium comprises leading European energy companies from Austria, Hungary, Germany, Bulgaria, Romania and Turkey (see map).

Timeline

Further Reading

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