Russia Drops South Stream Project, Pipeline Diverted to Turkey

Written by | Wednesday, December 3rd, 2014

Russia announced on Monday (1 December) that it had scrapped the South Stream pipeline project to supply gas to southern Europe, without crossing Ukraine. It was during President Vladimir Putin’s one-day visit to Ankara that Alexei Miller, the CEO of Russia’s state-controlled gas exporter Gazprom, told reporters that South Stream was “closed. This is it”. While the officially cited reasons for dropping the South Stream project were EU objections, Gazprom’s CEO also named Turkey as its preferred partner for an alternative pipeline, with a promise of a major discount of 6 percent for the Russia-supplied oil. A Gazprom communiqué has revealed that “New pipeline through Turkey would allow to bring about 50 billion cubic meters (bcm) to the hub at the Greek border.” While Greece itself consumes some 4 bcm per year, it remains to be seen where the remaining 50bcm will go.

The European Union, which has long been eager to reduce its energy dependence on Russia, and with its dispute with Moscow over Ukraine having no obvious solution, had opposed the construction of the $40 billion (€32 billion) South Stream pipeline, which was to enter the EU via Bulgaria, on competition grounds. President Vladimir Putin has slammed Brussels for denying Bulgaria, heavily dependent on Russian gas, its sovereign rights, while arguing that blocking the project “is against Europe’s economic interests and is causing damage”. Indeed, the Commission has insisted on Bulgaria to freeze the South Stream project, citing breaches to EU law in the intergovernmental agreement for the construction of the pipeline. Meanwhile, the proposed undersea pipeline to Turkey, with a projected annual capacity of 63 bcm, more than four times Turkey’s annual purchases from Russia, would most likely not face similar problems. Russia also proposed to combine the pipeline with a gas hub at the EU’s southeastern edge, the Turkish-Greek border, to supply southern Europe.

Nevertheless, many in Europe and also the United States are left bewildered and displeased by EU-candidate Turkey’s deepening energy ties with Russia at a time when Europe strives to lower its energy dependence on Russia and when Western powers have imposed economic sanctions on Moscow over its actions in Ukraine. Carlos Pascual, a former senior U.S. diplomat and an energy sector expert argues that the Russian decision to scrap the South Stream “will [actually] save European consumers money by eliminating an unnecessary high cost pipeline that would not have added any additional new supply,” while also stressing that the change in Gazprom’s strategy may well show the effects of EU and U.S. sanctions imposed on Russia for its aggression toward Ukraine that have deprived Gazprom of necessary capital.

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