South Stream: A European blessing or a Russian curse?

The South Stream, a pipeline project plagued with both economic and political controversies, was proposed with the intention of offering an alternative gas route from Russia to Central Europe and the Balkan Peninsula, without crossing through the troubled Ukrainian zones, securing the gas distribution of many South-eastern European countries. But is that really its primary purpose?

The plan of the pipeline includes more than 2000 km onshore, as well as 900 km offshore pipes, going under the Black Sea from Russia to the Bulgarian city of Varna, with the main purpose of providing the participating countries with a gas flow, uninterrupted by Gazprom’s disputes in Ukraine. From there, it would carry on across the country towards the city of Pleven, branching out towards Greece and further on towards the south of Italy. Another Pleven branch would continue across Serbia, specifically Belgrade, and pass through Hungary, eventually crossing Austria. This branch would end on the north side of Italy, adjoining to the Italian distribution network.

South Stream was largely considered the main rival of Nabucco, a pipeline which was to span from Turkey to Austria with the main purpose of diversifying gas sourcing and reducing the Russian influence on the industry. Nabucco, offering Iraq as a main gas suppier was preferred by both the EU and the US, and it was to lower Europe’s dependence on Russia. The Nabucco project, however, is currently facing suspension, leaving South Stream the only option available.

In the overall scheme, the countries involved in South Stream were offered lowered gas prices, similarly to a previous agreement between Gazprom and Naftogaz, the Ukrainian gas provider. South Stream is largely funded by Gazprom and its investors, in the form of loans towards the participating countries. The project’s current price is estimated to be $16 billion, with more than 50% of that being covered by Gazprom itself.

On 3 November, Hungary approved works on its portion of South Stream, causing the anger of the EU. The European Commission (EC) stated in a response that the decision goes against EU policy that disallows natural gas extractors to own their own distribution pipelines.

After the June protests in Ukraine and Russia’s involvement with the separatists, Bulgaria was forced to halt work on the pipeline, with the EC citing the regulation stated above as the main reason.

As the project was being developed, it has become known that the two countries, which have always maintained close political relations, had reached a separate agreement, without Bulgaria consulting the European Commission. Tensions between Bulgaria and the European Union increase as the EC has opened an infringement procedure against the Eastern European country, forcing it to put a halt on operations within its territory, and as a result – on the overall project.

In a conference at the end of October this year, the Bulgarian president, Rosen Plevneliev, and the Austrian president, Heinz Fischer stood together in favour of South Stream, citing the need of an alternative supply system. “We actively support the South Stream project as an opportunity to diversify gas supply routes to Southeast and Central Europe,” Plevneliev stated. “I have informed President Fischer that Bulgaria has political consensus on the South Stream construction.” Fischer responded in favour, pointing out that “the North Stream already exists. We need to build South Stream for the purpose of diversification.”

Bulgaria is one of the countries that have suffered the most from the lack of an alternative gas route in the past years, after a dispute between Gazprom and Naftogaz left the Balkan Peninsula with no energy for more than three weeks in January 2009.

As Naftogaz accumulated a debt of more than $2 billion towards its Russian counterpart, Gazprom cut off the gas flow towards Ukraine on January 1st that year, leaving many countries gasless, including Greece, Hungary, Macedonia, and Bulgaria, where winter was reaching severe temperature levels of -20 C.

At the time of the crisis, Slovakia, Bosnia, Macedonia, and Moldova relied entirely on the Russian provider, with 100% of their gas imports coming through Ukraine, and Bulgaria following closely with 96%, the other four percent consisting of alternative fuel reserves.

The dispute was resolved on January 18th, when Vladimir Putin and Yulia Tymoshenko reached a new ten-year agreement, resolving the issue for the moment being and restoring gas flow towards Europe in the span of four days. Over that time, Gazprom had recorded losses of over $1.5 billion. In June 2014, this contract led to the arrest of Yulia Tymoshenko during the Ukrainian riots against the government.

Pictures: Wikimedia Commons

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