Putin: South Stream pipeline at a halt

December 2, 2014

Russian President Vladimir Putin said that Russia will discontinue current plans for the South Stream pipeline, citing continuing opposition from Europe, specifically Bulgaria. Instead, he announced preliminary plans to create a gas hub for southern Europe at the Turkish-Greek border.

South Stream's offshore section poised for construction phase. From Gazprom.

Bulgaria still has not granted permission for the pipeline to be built. South Stream Transport, the joint venture established for the planning, construction, and subsequent operation of the 931km offshore gas pipeline, completed the Environmental and Social Impact Assessment for the Bulgarian Sector of the pipeline in late July. The construction permit was granted by the Ministry of Construction, Housing and Utilities of the Russian Federation in early July.

The pipeline was planned to originate in Russia, run under the Black Sea, emerge in Bulgaria, and then travel through Serbia, Hungary and Slovenia before terminating in Tarvisio, Italy. It would also supply gas to Croatia and Bosnia and Herzegovina. It was not planned to cross the Ukraine.

Commercial operations of the first line were scheduled to start by the end of 2015. At full capacity, the four pipeline strings would deliver 63Bcm of natural gas annually.

Putin just returned from a state trip to Turkey where he met with Turkish leaders and diplomats. When discussing the situation with Bulgaria, Putin said that despite assurances from his Bulgarian colleagues that they would implement the pipeline, approval never came to fruition.  

“Would we invest hundreds of millions of dollars in a project, move across the Black Sea, and stop in front of the Bulgarian border? How do our colleagues imagine this? So we will not implement anything. Though the company that was supposed to build it is ready to start works already today, or even yesterday, and everything is ready for it,” Putin said in a statement from a 1 December press conference held at the conclusion of his trip to Turkey.

Putin praised Turkey and the relationship the two countries enjoyed. He specifically thanked Turkish leaders for expediently granting all necessary permits for South Stream to be built in its exclusive economic zone despite not directly benefitting from the project itself.

South Stream pipelay. From Gazprom.

“At the same time, taking into account the European Commission’s position, which is not conducive to implementing this project, taking into account the fact that we have only recently received permission from relevant authorities in the Netherlands – granted, it was a positive decision, and taking into account that we still have not received permission from Bulgaria, we feel Russia cannot continue implementing this project under the existing circumstances,” Putin said.

On 13 November, the Management Committee for Russian state-owned Gazprom announced that the operating consortium South Stream Transport was ready to begin offshore construction. However, Putin said that without Bulgarian permission, no progress can be made.

“I think it’s clear to everyone that it would be ridiculous to start the construction in the sea, reach the Bulgarian shore and stop. So we are forced to reconsider our participation in this project,” he said.

Today, pipeline construction contractor Saipem said in a statement that it had “not received any formal notice of termination of the contract” and that operations would continue to progress on the US$552 million construction contract.

The offshore pipeline would run 931km from Anapa to Varna, Bulgaria. According to South Stream Transit, four parallel gas pipelines, or “strings,” would run along the seabed in water depths reaching 2200m, with each string supplying 15.75Bcm/year of natural gas. The pipelines will be comprised of more than 75,000 individual pipes welded together on-board special pipe-laying vessels and then laid at depths of up to 2200m.

Energy Union Vice President Maros Sefcovic said that a planned meeting on South Stream will take place as scheduled, noting that the project had been regularly discussed between the relevant member states and the European Commission.

"The next meeting had been planned for the 9 December 2014 and it will take place regardless of the announcement by Russia to stop the project," Sefcovic said in a statement. "Obviously, this new development will be an additional element that will be discussed in that meeting."

Diminishing need for 'politically toxic' Russian gas

While Putin says his decision is based on Europe's inactivity, Jim Krane, fellow in energy geopolitics for Rice University's Baker Institute for Public Policy, sees it differently.

"The failure of the South Stream pipeline owes itself largely to the European Union's revulsion toward Putin's aggression in the Ukraine," Krane said. "Europe still needs gas, although demand has been weak, but Russian gas is becoming politically toxic."

He explained that Putin had gained power due to Europe's over-reliance upon the Russian Federation's gas. However, he believes that Putin has "[overplayed] his hand in the Ukraine," and the dynamics have shifted as a result of this and European efforts to reduce its reliance on Russian Gas.

"At last, Putin and Russia are being held accoutnable for their misadventures in the region," he said.

Gazprom holds a 50% stake in the South Stream Transport joint venture. Its partners are Italy’s Eni (20%), France’s EDF and Germany’s Wintershall Holding GmbH (BASF Group) with 15% each.

Read more:

South Stream granted go-ahead

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