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    The Conversation: End of the line for Russia’s South Stream pipe dream?

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Summary

After a long-running battle with the EU over the need for the pipeline and who would control it, Vladimir Putin announced that the project was over, in its planned form at least.

by: Ragani

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Press Notes

The Conversation: End of the line for Russia’s South Stream pipe dream?

After seven years of planning, the South Stream pipeline that would carry gas from Russia to Europe via Bulgaria has been cancelled. After a long-running battle with the EU over the need for the pipeline and who would control it, Vladimir Putin announced that the project was over, in its planned form at least.

Putin made the announcement in Ankara, combined with signing a memorandum of co-operation with Turkey. Moscow promised to increase gas supplies to Turkey and Putin said that instead of the planned South Stream, a new hub could be built on the Turkish-Greek border to supply Europe with gas. This would circumvent EU legislation, and Putin has argued that it is EU member states that will lose out in terms of construction jobs and transit fees. So is it really a defeat for Putin and is it even the end of South Stream?

South Stream is not necessarily dead in the water. The project retains the strong support of a number of states directly involved (Austria, Bulgaria, Hungary, Slovenia and Italy, through commercial involvement). Also, agreements have been signed (though the EU demands that they are renegotiated) and preliminary construction has begun in Bulgaria and Serbia as well as substantial work having been completed in Russia.

Then there’s the fact that, as of December 19, Bulgaria considered the project to be ongoing. And, it is worth noting that in 2010 Russia also threatened to reroute the project, through Romania instead of Bulgaria.

And European Commission president, Jean-Claude Juncker, was quick to state that issues related to South Stream “are not insurmountable … [it] can be built”.

However, Gazprom’s Alexei Miller has argued that the project is over, and on December 9 made the case that Bulgaria would suffer. He said: “Approximately €3 billion 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.”

Other options

For Russia the attraction of the project has been threefold: to sell more gas to Europe; to reduce reliance on Ukraine as a transit state; and to gain a degree of political leverage over the transit states its gas goes through. Ukraine has been the main transit state for transporting Russian gas into Europe and has proved an unreliable partner for Russia, with supply disruptions in 2006 and 2009, as well as the ongoing political tensions.

But Russia does have other options; the North Stream pipeline through the Baltic Sea to Germany, and the Yamal pipeline through Belarus and Poland. Or, Russia could continue with the 80bcm of gas exports that already go through Ukraine, or a portion of these.

But if the goal is to reduce or remove dependence on this route then there is logic in the new Turkish hub. This would circumvent Ukraine and be free of the complications of EU law and politics.

Early days

It is early days, however. A memorandum of understanding with Turkey is one thing, but the construction and commercial operation of a major pipeline is another. After all, a memorandum was signed on South Stream in 2007, with a final investment decision made five years later and construction set to last from 2014 to 2017 before suspension by the EU in the summer of 2014. It would have taken a minimum of 10 years from conception to completion. And it is hard to imagine even an expedited rerouted South Stream to Turkey being up and running before the early 2020s.

In the meantime, there are several other options for Russia to maintain exports to the EU without relying on Ukraine, or even increase them. These are based on existing infrastructure, with a cumulative capacity of 50bcm. In October it was agreed to expand the Blue Stream pipeline to Turkey from 16 to 19bcm, and the Yamal pipeline is running at only two thirds of its 33bcm capacity. North Stream too has a capacity of 55bcm but only around 20bcm is currently in use (though the EU needs to approve this expansion).

Russia is also exploring new markets and has agreed to export around 68bcm (approximately one third of Europe’s imports, and a similar capacity to South Stream) from Siberia to China, with half from 2018 and the other half at the planning stage. But, saying all this, Russia’s tight grip on the Central and Southern European gas markets could be diminished by any significant delay in a South Stream variant.

A significant EU-Russia gas relationship will continue in the medium term – demand for gas imports is predicted to increase until at least 2030 and Russia will be integral. Plans for mega-projects are under pressure given Russia’s current economic woes, but this is a long term project and, as Putin has argued), the global economy continues to grow and this will require additional energy resources. In light of all this, it would be surprising if discussions around a South Stream via Europe rather than Turkey are completely finished.

Originally covered on The Conversation

Author: Tomas Maltby - Lecturer in International Politics at King's College London

http://theconversation.com/end-of-the-line-for-russias-south-stream-pipe-dream-35445