The Scrapped Pipeline Project

MOSCOW/BERLIN | | russische-foederationtuerkeibulgarien

MOSCOW/BERLIN (Own report) - Moscow's cancellation of the South Stream pipeline project is causing Berlin and Brussels headaches. EU bodies and government leaders of EU member states have expressed their wish to continue negotiations on the pipeline, which, in a few years, would annually have pumped 63 billion cubic meters of natural gas to Western Europe. They still see some possibilities for clarification. By delaying the project, Brussels had hoped to exert pressure on the Russian government. Moscow, however, got tired of banging on closed doors and announced South Stream's cancellation on Monday. Germany is one of the losers, because it would have been able to expand its influence on the European gas supply through its BASF subsidiary Wintershall participating in the pipeline project. Turkey is the winner, because the planned Russian South Stream gas will now probably transit through its territory. Turkey, a loyal transit country, could become an influential gas distribution hub for the EU - at a time when tensions between Berlin/Brussels and Ankara are rising.

To Germany's Advantage

The South Stream was originally planned as a southern counterpart to the North Stream pipeline, the so-called Baltic pipeline. Both projects had a double background. On the one hand, supply capacities were to be expanded to meet the EU's steadily rising demand for gas. On the other, new pipes were to reduce dependency on transiting gas through Ukraine, with Kiev repeatedly causing problems. North Stream is a de facto German Russian project, with Gazprom holding 51 percent and E.ON and Wintershall currently each 15,5 percent, on the German side. Recently Gasunie (Netherlands) and GDF Suez (France) were involved with 9 percent each. South Stream has an Italian focus with Italy's ENI holding 20 percent (Gazprom 50 percent). However, the French EDF and the German Wintershall are also shareholders, with 15 percent each. A German (Gerhard Schröder) is North Stream's board chairman and another German (Henning Voscherau) South Stream's. The implementation of this project would therefore have expanded German influence over the European gas supply.

Via the Black Sea

South Stream was to cover a distance of 2,380 km, connecting Russia to Austria. The pipeline would have run from Russia's Anapa, at the coast of the Black Sea, and along the seabed, at a depth of up to 2,250 meters, to Bulgaria's Varna and from there via Serbia and Hungary to Austria. A branch-off through Slovenia to Italy and another to Croatia were already scheduled. Partial supplies were planned already for 2015 and the annual full transport capacity of 63 billion cubic meters was planned for 2019. The pipeline costs were estimated at 25 billion US dollars. Russia has already invested large sums of more than 4,5 billion US dollars. Work was still in full swing last week. On November 24, the competent Gazprom head of division announced that the construction of the underwater segment would begin in December.[1]

Brussels vs. Sofia

Monday, Russian President Vladimir Putin announced the project's immediate discontinuation. The immediate cause of the discontinuation was Bulgaria's halting all construction on the pipeline and its refusal to continue. The official reason was that the EU Commission insists on applying EU norms stipulating that gas producers not be identical with the pipeline operators, which would not be possible with Gazprom. However, observers see a clear correlation between the power struggles over Ukraine and the sudden increase of pressure from Brussels and Washington on Sofia to delay the pipeline construction. Sofia would have greatly profited from South Stream - not only from the transmission fees, estimated by some at around 400 million Euros annually, but also from "having become an influential transit country in the great gas poker game," according to German commentators.[2] However, in the end, Sofia "had no other choice" than to stall the project - against its own interests. "The tiny Balkan nation, with a population of little more than seven million, could hardly have won a power struggle against the EU Commission."

An Admonition for Russia

Berlin and Brussels obviously had not seriously considered that Moscow could have done without South Stream. He parts from the premise "that South Stream will eventually be constructed," declared Bulgaria's President, Rosen Plevneliev, at the beginning of October, albeit, Russia must first "learn that Europe has a mighty European Commission." This admonition had been printed triumphantly in an influential German daily.[3] Putin's decision to scrap the South Stream project, according to reports, was a "complete surprise" for the West European participants. It was reported that "the BASF subsidiary, Wintershall, holding 15 percent of the shares in the pipeline, was just as much caught off-guard as Italy's ENI and France's EDF companies."[4]

More Influence for Turkey

In fact, Russia's abandoning South Stream has wide-ranging consequences for the EU countries. Without this pipeline, the EU countries will "certainly not get" the originally planned amount of gas, announced Russia's President Putin on Monday.[5] The Austrian natural gas distributor hub in Baumgarten is one example of the looming tangible Intermediate and long-term consequences of this cancelation. Baumgarten was planning to also draw its future supply from South Stream, where it will now get the gas, remains uncertain. The cancelation will also have a negative impact on the BASF subsidiary Wintershall and therefore on the German gas industry, which has now lost all influence over the designated South Stream gas supply. At the same time, Ankara has acquired new power. Putin has announced that the gas, earmarked for South Stream, will now be piped entirely to Turkey, which can consume a portion itself, and construct a major gas distribution hub for the rest, from which it can then supply southern Europe via Greece. This reinforces Ankara's clout, which, for some time, has been attempting to become a gas supply hub for the EU.

From Transit Country to Distribution Hub

This has a significant impact in terms of the power constellation. As the Turkish press has noted, in terms of energy resources, the West has always considered Turkey to be a loyal transit country, through which resources from the Caspian Basin and Central Asia can be transited, comfortably bypassing Russia. This was partially done via the BTC (Baku-Tbilisi-Ceyhan) oil pipeline. The recently cancelled "Nabucco Pipeline" project had been intended for Caspian gas.[6] In German-European or US plans, it had not been envisaged that, over the past few years, their NATO partner, Turkey, would have attempted to develop a policy independent of that of the West. (german-foreign-policy.com reported.[7]) Should the projected Russia-Turkey gas deal, in fact, materialize, Turkey would become significantly more powerful as the distribution hub - a "decisive political transformation" according to the Turkish media.[8]

"Not Yet Over"

The EU establishment seems to be getting a bit worried. Immediately following Moscow's announcement of the cancellation of the project, German commentators - in their cheap propaganda style - triumphantly called this a "personal defeat for Putin."[9] However, questions are cautiously being raised as to whether the decision could be revised. Only Gazprom-Chief Alexej Miller adamantly declared, "the project is closed. That's it," he told reporters.[10] According to reports, Putin's declarations, however, seem to leave some leeway and "no official decision" has been made.[11] EU Vice-President Maroš Šefčovič, in charge of energy supply, announced that negotiations on the South Stream project would continue.[12] Gerhard Roiss, CEO of the Austrian energy supplier OMV, still sees options for talks. "I do not say that it's over."[13] The matter still has to "be clarified," according to the Austrian Vice-Chancellor Reinhold Mitterlehner.[14]. Berlin and Brussels have gone too far and now they have to try to limit the damage.

[1] South Stream: Gazprom beginnt im Dezember mit Bau von Seeabschnitt. de.ria.ru 24.11.2014.
[2] Michael Martens: Eine persönliche Niederlage für Putin. www.faz.net 01.12.2014.
[3] "Russland ist ein nationalistischer, aggressiver Staat". www.faz.net 04.10.2014.
[4] Markus Balser: Russland stoppt Pipeline-Projekt. www.sueddeutsche.de 01.12.2014.
[5] Russland stoppt den Bau der South-Stream-Pipeline. www.zeit.de 01.12.2014.
[6] See Nabucco, Southern Corridor and Das letzte Kapitel.
[7] See Islamisten als Partner, Ein deutscher Leuchtturm in Istanbul and Geostrategically Very Prominent.
[8] Putin drops South Stream gas pipeline to EU, courts Turkey instead. www.todayszaman.com 01.12.2014.
[9] Michael Martens: Eine persönliche Niederlage für Putin. www.faz.net 01.12.2014.
[10] Russland stoppt den Bau der South-Stream-Pipeline. www.zeit.de 01.12.2014.
[11] Aus für South Stream: Kein Anschluss unter dieser Pipeline. www.spiegel.de 02.12.2014.
[12] EU gibt Pipeline-Projekt noch nicht auf. www.zeit.de 02.12.2014.
[13] OMV-Chef: "Ich sage nicht, dass es vorbei ist". www.krone.at 02.12.2014.
[14] Gasleitung: Westliche South-Stream-Partner überrumpelt vom Projekt-Stopp. www.spiegel.de 02.12.2014.