Putin Drops South Stream Gas Pipeline over EU objections

The EU, at loggerheads with Moscow over Ukraine, and keen to reduce its energy dependence on Russia, had objected to the $40 billion South Stream pipeline, which was to enter the EU via Bulgaria, on competition grounds.

The proposed undersea pipeline to Turkey, with an annual capacity of 63 billion cubic meters (bcm), more than four times Turkey’s annual purchases from Russia, would face no such problems. Russia offered to combine it with a gas hub at the EU’s southeastern edge, the Turkish-Greek border, to supply southern Europe, according to Financial Tribune.

Alexei Miller, the chief executive of Russia’s state-controlled gas exporter Gazprom told reporters in Ankara, where he was on a one-day visit with President Vladimir Putin, that South Stream was “closed. This is it”.

However, the European Commission said on Tuesday it will go ahead with talks on the South Stream pipeline project on Dec. 9, even though Russia says the plan has been axed. “The Commission has hosted several meetings that aimed at finding a solution to this project that would fully comply with the EU legislation,” Commission Vice President Maros Sefcovic said in a statement. The next meeting is planned for Dec. 9 and will go ahead, he said, adding security of supply was a top priority in an “ever changing energy landscape”.                                                  

Putin accused the EU of denying Bulgaria, heavily dependent on Russian gas, its sovereign rights, and said that blocking the project "is against Europe's economic interests and is causing damage."

Miller said Gazprom had signed a memorandum of understanding with Turkey's Botas on the pipeline under the Black Sea to Turkey. But the plan remains at an early stage. Russian Energy Minister Alexander Novak said that "energy ministers and companies (on both sides) were ordered to look into these proposals in detail ... It is hard to assess the costs, financial mechanisms, terms of fulfilment for now."

He also said Turkey was seeking a 15 percent discount for Russian gas.

He announced that Russia would grant Turkey a 6 percent discount on its gas imports from Russia for next year, supplying it with 3 bcm more than this year.

There are no legal grounds to compensate Bulgaria following Russia's announcement the South Stream gas pipeline will not go ahead, a European Commission spokeswoman said on Tuesday."There is legally speaking no basis for compensation," the spokeswoman, Anna-Kaisa Itkonen, told reporters.

The South Stream pipeline had exposed cracks in EU strategy as Hungary, Austria, Serbia and Bulgaria among others saw it as a solution to the risk of a repeat of supply disruptions via Ukraine, while Brussels and Washington saw the project as entrenching Moscow's energy stranglehold on Europe. Yet its appeal has waned as economic growth has stalled, and with Azeri Caspian gas due to land in Italy from 2020.

Russia is already Turkey's main energy supplier, and Turkey Russia's second biggest trade partner after Germany. Those economic interests have outweighed deep differences over Ukraine and especially Syria's nearly four-year-old civil war.

  Competition Grounds

In the autumn of 2013, the European Commission launched an anti-monopoly investigation into the South Stream project on suspicion that it disagrees with the rules of the EU’s Third Energy Package under which companies are supposed to separate generation and sales operations from transmission networks.

Last year, the European Commission urged to review bilateral intergovernmental agreements between Russia and EU countries to ensure that they comply with the Third Energy Package, which requires the separation of gas production, transportation and sale to prevent gas suppliers from dominating the infrastructure.

Russia insists the South Stream project should be exempt from the effect of the Third Energy Package because it signed bilateral inter-governmental agreements with the EU countries participating in the construction of the gas pipeline on their territory before the EU’s new energy legislation came into force.

Therefore, Russia says that the European Commission’s requirement to adapt these documents to the Third Energy Package contradicts the basic law principle that legislation cannot have retroactive force

  TANAP

The new Trans Anatolian Natural Gas Pipeline (TANAP - Azerbaijan-Turkey-Europe) that is currently under construction may be used by Russia’s natural gas giant Gazprom for the supply of Russian gas to the south of Europe, instead of the South Stream pipeline, deputy head of the National Energy Security Fund Aleksei Grivach told Itar Tass.

Grivach said the new project (TANAP), supported by the European Union, envisages the supply of Azerbaijani gas to European Union countries and is designed to transport 30 billion cubic meters per year. However, Azerbaijan is unlikely to be able to supply more than 15 billion cubic meters, so Gazprom has the right to count on the remaining capacity in the pipe. “However, anything may be expected from the EU,” Grivach said.

Turkey attaches great importance to the implementation of projects of TANAP and Trans Adriatic (TAP) pipelines the sections of which pass through the territory of the republic. “Turkey plays an important role in these projects. They are implemented to meet the fuel needs that Europe will have by 2035,” Turkish Energy Minister Taner Yildiz said previously.