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  The South Stream: is the patient on life support or really dead? (2)

Viktor Denisenko
2015 01 12

Although after an official notice of high Russian officials on termination of the gas pipeline South Stream it would be logical to close the topic, it seems that the game is not over. This situation reminds the joke about  „the patient who is more dead than alive“, or vice versa?

What casts doubts that Russia has really cancelled construction of South Stream and is planning to divert gas pipeline through Turkey?

The official Gazprom‘s website provided the latest news releases on South Stream on 24 November 2014. It informed that the concern discussed cooperation opportunities with the Italian company ENI, but didn‘t give any further news.

On 2 December the issue on termination of the project was considered not only by president Vladimir Putin but also by Gazprom‘s leader Alexei Miller. It is therefore surprising that the corporation‘s website made no mention on the above news. Thus, the conclusion could be made that Gazprom‘s silence was due to other causes. 

The alternative chosen by Russia is to build another gas pipeline on the seabed of the Black Sea directly to Turkey alongside a not-fully operational pipeline Blue Stream, to expand it to Greece and, consequently, export gas to Southern Europe. However, a „Turkish alternative“ raises serious doubts concerning profitability. The website bloomberg.com indicates that this is an unrealistic project and provides the arguments why this is an ideefixe.

First of all it is highlighted that gas demand in Europe is decreasing. Besides, taking into account that Russia has lost credibility in the EU because of aggression against Ukraine, the search for alternative energy sources has become one of the key political priorities of the EU.  

There are also doubts on whether Turkey is really interested in the redirection of South Stream. Turkey could be interested to have more energy ties with Russia, but this doesn‘t mean that Ankara has chosen to be dependent on Russian „gas needle“. In fact, Turkey has been actively diversifying gas import routes: apart from Russia, it gets gas via pipelines from Iran and Azerbaijan, and plans to import fuel from Turkmenistan as well as more liquefied gas from Algeria.

According to Bloomberg.com, Russia is more interested in building a pipeline to Turkey (with an extension to Greece) than Ankara. In view of this, Ankara seeks to obtain gas price discounts for Russian gas: 15 percent instead of 6 percent granted by Putin. Turkey will probably achieve its goal, whereas redirection of  South Stream toward Turkey might be as „effective“ for Russia as reorientation to the China‘s natural gas market.

South Stream project is discussed in the public space not as a finally closed project but more as a project facing certain problems which might be somehow solved. The impression is that the patient is „more alive than dead“. 

According to some information sources, the decision to stop South Stream project made some European countries revise their positions (first of all Bulgaria which is member of the EU, and Serbia, seeking membership in the EU). Abandoned South Streampipeline plan seems to be a real disappointment for Serbia. Its foreign minister Ivica Dacic said that Serbia‘s EU integration should not hinder relations with non-EU partners, and first of all with Russia; moreover that Moscow has nothing against Serbia‘s integration (through Serbia Moscow can obtain one more „advocate“ in the EU)

Bulgaria, which was accused for suspending construction of the pipeline is also expecting recovery of South Stream project works. It gave assurances that if Russia undertakes to resume construction works, Bulgaria is ready to fulfil earlier-reached South Stream project agreements.

High EU officials also noted that South Stream could be built if Russia will fulfil all the conditions of the EU. According to the President of the European Commission Jean-Claude Juncker, the project should be implemented in line with EU regulations. German Chancellor Angela Merkel also supported continuation of South Streamproject. 

Thus, there is still a possibility to resume South Stream project and today a lot depends on Russia. It is assumed that Moscow released the news on its closure as a tool of pressure (blackmail) toward EU Member States involved in South Streamproject. Moscow expected that these countries will request concessions from Brussels, for instance, to exempt South Streamfrom rules relating to the EU‘s Third Energy Package.

The actions of Bulgaria and Serbia demonstrate that blackmail was effective, but this does not guarantee automatic revival of South Stream project. Today implementation of this project might depend on financial Russia‘s possibilities. According to the recent estimations, project prices have increased considerably; moreover, because of Western sanctions and reduced oil prices Russia‘s economic situation has become very complicated. Thus, the dead energy project most probably will not be brought to life.

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