Southeast European governments mull options after South Stream scrapped

By bne IntelliNews December 2, 2014

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Russia’s decision to axe the South Stream gas pipeline project is a blow for Southeast European countries from Bulgaria to Austria, which had hoped the pipeline would ensure reliable supplies of gas from Russia.

However, there are still hopes that countries from the region may gain access to new streams of Russian gas. A top European Commission official said on December 2 that talks with Russia on the issue, scheduled for December 9, are still expected to go ahead. Meanwhile, the rival project to build a pipeline to Turkey, announced by Russian President Vladimir Putin on December 1, may enable exports via Turkey and Greece to at least some countries in the region.

On a visit to Ankara on December 1, Putin said that Russia is unable to proceed with construction of the South Stream pipeline, blaming the decision to halt work on the project on EU sanctions against Russia.

Specifically, Putin said that since Bulgaria, a key state along the pipeline’s route, had not given permission for construction to go ahead, work on other parts of the pipeline could not begin. Bulgaria, an EU member state since 2007, would have been the entry-point for gas routed under the Black Sea from Russia.

“Bearing in mind the fact that we have not yet received Bulgaria’s permission, we think Russia in such conditions cannot continue this project. I mean we are to begin the construction of the pipeline system in the Black Sea,” Putin told journalists in Ankara, Russian newswire TASS reported.
“We couldn’t get necessary permissions from Bulgaria, so we cannot continue with the project. We can’t make all the investment just to be stopped at the Bulgarian border,” Putin said, adding that, “This is the choice of our friends in Europe.”

The EU imposed sanctions against Russia earlier this year over the Ukrainiain conflict and Russia’s annexation of the Crimea. In April, the European Parliament voted in favour of ending the South Stream project, despite opposition from several states along the route.

Instead, Russia is planning to use the pipeline section already built in Russia to launch a new southward pipeline, running under the Black Sea to Turkey, which has steadily growing demand for natural gas. Trade between Russia and Turkey has also boomed this year, since Ankara is not part of the Russia-EU trade war. Russian Energy Minister Alexander Novak announced on December 1 that the Russian and Turkey energy ministries and gas companies have been instructed to start drawing up plans for the pipeline as soon as possible.

Along with Austria and Hungary, Bulgaria, which imports almost all its natural gas from Russia. had been one of the main supporters of South Stream within the EU. All three states had hoped to secure a reliable flow of gas from Russia, through the 63 billion cubic metre capacity pipeline, which would bypass Ukraine.

Would-be EU member Serbia has been another staunch supporter of the project. Serbia, which is not yet an EU member state, is not bound to comply with EU sanctions, and state gas company Srbijagas had planned to start building the Serbian section of the pipeline before the end of this year. Fellow ex-Yugoslavian states Bosnia, Croatia and Slovenia were also due to receive gas supplies from the pipeline network.

Serbian Prime Minister Aleksandar Vucic said in response to Putin’s announcement that Belgrade remained "loyal to this project" and that the news it was being scrapped was "not good news for Serbia”.

“Serbia has done nothing to contribute for such a decision to be made. Our country invested a lot of effort in this project over the past seven years and has not rejected it even under the greatest possible pressure,” Vucic said during a visit to Jerusalem on December 2. He added that he plans to discuss the issue with Putin and other Russian officials during the upcoming UN Security Council session in New York.

The response in Sofia was cooler, with President Rosen Plevneliev saying late on December 1 that it had not been clear to what extent Bulgaria would benefit from South Stream. Despite Bulgaria’s dependence on Russian gas imports, Plevneliev raised questions about the transparency of the project, saying “We do not want to repeat Belene” - referring to the dispute between the Bulgarian government and Russia’s Rosatom over a planned nuclear power plant.

Plevneliev, who insisted that the former Bulgarian government under Plamen Oresharski comply with the EU and halt work on the project, also confirmed that Sofia would act in line with the EU. "South Stream is a project that can happen in the European Union only if it complies with European legislation,” he said. “Unfortunately, Russia has demonstrated the rule of power rather than the rule of law during the Ukrainian crisis.... I believe that no-one in the EU will not say 'No' to the South Stream project if Russia complies with European law.”

Despite the blow the news about South Stream has dealt to countries along its planned route, the newly proposed gas pipeline from Russia to Turkey could potentially serve at least some of these countries. Russian Energy Minister Alexander Novak told journalists on December 1 that plans for a gas hub on the Turkish-Greek border, to be used to supply gas to southern Europe, is also being considered, TASS reported.

Although Gazprom president Alexei Miller claimed that the decision to scrap South Stream was “irreversible”, European Commision officials say they plan to continue talks with Moscow on the project.

European Commission vice president Maros Sefcovic said on December 2 that talks scheduled for December 9 will go ahead. "The Commission has hosted several meetings that aimed at finding a solution to this project that would fully comply with the EU legislation. The next meeting had been planned for the 9/12 and it will take place regardless of the announcement by Russia to stop the project," Sefcovic said in a statement. “Obviously this new development will be an additional element that will be discussed in that meeting,” he added.

South Stream would have ended the reliance of participating states on pipelines via Ukraine for their supplies of Russian gas. Even before the ongoing conflict in Ukraine, this was a risky route, since Ukraine’s western neighbours shared any punishments meted out to Kyiv when Russia on occasion switched off the gas taps for political reasons.

Governments across the region now face the task of ensuring gas supplies not just for the 2014-2015 winter, but in the longer-term. Romania, the region’s largest producer of oil and gas, has pledged to support neighbouring Moldova this winter, though Romania still relies on Russia for part of its gas consumption. Romanian oil company Petrom and US major Exxon are working to develop Romania’s offshore Black Sea resources, which according to outgoing President Traian Basescu are expected to cover both Romania’s and Moldova’s gas demand by 2019.

Some states from the region are also due to receive gas from Azerbaijan’s offshore Shah Deniz field after the construction of the Trans Anatolian Natural Gas Pipeline Project (TANAP) and the Trans-Adriatic Pipeline (TAP). When the two pipelines are completed, by 2019, they will deliver gas via Georgia and Turkey to Greece, Albania and Italy, with an interconnector from Greece to Bulgaria also planned.


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