bne IntelliNews -

Russian President Vladimir Putin announced on a visit to Turkey that Russia and its national natural gas export monopoly Gazprom will not build the South Stream gas pipeline project, because of resistance to it by the EU. "If Europe does not want to carry out the project, then it will not be carried out,” said Putin on December 1. “We are now going to focus our energy resources in other directions, including the [liquefied natural gas] LNG projects.” 

The South Stream pipeline, with a projected annual capacity of 63bn cubic metres (cm), was planned to run under the Black Sea to Bulgaria, continuing on the mainland to the Baumgarten gas hub in Austria. The pipeline would thus have created an alternative to the traditional gas transit route to Europe via Ukraine.

Russia has had fraught relations with Ukraine for a number of years and is currently embroiled in the civil war there. Since South Stream is widely regarded as an anti-Ukrainian project, the EU forced Bulgaria and other transit countries to halt construction work on the grounds that South Stream does not comply with the third energy package on giving competitors third-party access.

But it was not for nothing that Putin announced the decision in Turkey. Putin and Gazprom's Alexei Miller said that an additional 63bn cm pipeline alternative to South Stream could connect Turkey and Russia, coupled with the construction of a gas hub on the Turkish border for further distribution to Europe. The pipeline to Turkey would continue via the Black Sea from the pipeline stretch already built on the Russian mainland, at an estimated cost of around $4.66bn. 

Putin's counterpart Tayyip Erdogan, Gazprom and Turkish BOTAS Petroleum Pipeline Corporation also announced plans to expand the existing Blue Stream pipeline to Turkey by 3bn cm annually.

Analysts surveyed by gazeta.ru welcomed the announcement, believing that a pipeline to Turkey would cost only half of the cost of South Stream, the total cost of which was put at almost $30bn, and thus will take some pressure off Gazprom's investment programme. It is not clear, however, how the stakes of Italian ENI (20%), French EDF and German Wintershall (15% each) in South Stream will be affected.

But with the only existing alternative to gas transit through Ukraine being Russia's Nord Stream pipeline under the Baltic Sea to Germany, in the medium term about 50% of Russian gas will have to continue being delivered to Europe by means of Ukrainian transit.