Why Russia cancelled South Stream

May 28:

Russia has abandoned its plans to build the South Stream gas pipeline, intended to carry Russian gas under the Black Sea and via Bulgaria to the EU. President Vladimir Putin said during a visit to Turkey last December: “If Europe does not want to implement [South Stream], then it will not be implemented. We will redirect our energy flows to other regions of the world” — mainly Asia.
The South Stream project involved European investors — EDF (France), ENI (Italy) and Wintershall (Germany) — and was launched in 2006 with the aim of bypassing Ukraine and scuppering the Nabucco pipeline (which was to link the gas fields of the Caspian Sea to central Europe). The decision to cancel South Stream came at a time of increased diplomatic tension with the EU (which had adopted sanctions against Russia after its annexation of Crimea in March 2014).
But there were also economic reasons. Russia realised that the lengthy negotiations with the European Commission over the implementation of the third climate and energy package had reached an impasse. To promote competition, EU rules require gas pipeline operators to open up their networks to all suppliers, so investors no longer have priority in reserving gas transportation capacity according to their stake in the pipeline. Gazprom asked to be exempted to offset the necessary investment ($35bn).
To guarantee its gas supply to Europe, which will be its biggest market for many years to come, Russia wants to replace South Stream with another gas pipeline under the Black Sea — this time to Turkey (Turkish Stream). The project has already attracted interest from Greece, Macedonia, Serbia and Hungary. If transit via Ukraine becomes too uncertain, Europe will have to collect its gas from the Greek-Turkish border, where the terminal is to be located. This will involve building costly infrastructure, in which the major European gas companies are reluctant to invest (for the same reasons as Gazprom).
The EU still believes it can secure the Ukraine route for Russian gas by means of a lasting agreement between Ukraine and Russia. It is pressing Ukraine to resolve the dispute over its gas debt and wants to make economic aid conditional on Ukraine liberalising its gas sector.

Source: http://mondediplo.com/2015/06/07south-stream?

Comments