• Natural Gas News

    Gazprom's Medvedev Opines on South Stream

    old

Summary

An editorial by Alexander Medvedev, deputy chairman of the Gazprom Management Committee, director general of Gazprom Export as published in Today's...

by: J. Verheyden

Posted in:

South Stream Pipeline, Nord Stream Pipeline, Natural Gas & LNG News, Pipelines

Gazprom's Medvedev Opines on South Stream

An editorial by Alexander Medvedev, deputy chairman of the Gazprom Management Committee, director general of Gazprom Export as published in Today's Zaman

Today we are proud to announce that the German firm Wintershall will be joining the South Stream project, which when completed will supply Europe with an additional annual 63 billion cubic meters of natural gas via the Black Sea.

Putting this into context, the last few weeks were busy times for European energy policy. In consecutive meetings, EU leaders and energy ministers tried to sketch a common vision for Europe’s energy strategy until 2020 and 2050. This was surely a difficult task, raising the question how Europe can ensure adequate access to clean, safe and efficient energy to meet its ambitious emission targets, while at the same time protecting businesses and consumers from price hikes and supply shortages.

One of the answers to Europe’s energy jigsaw puzzle is natural gas: It has great potential for emission abatement, relies on tried-and-tested technologies and is abundantly available at a competitive price. Even optimistic predictions of the market share of LNG and shale gas in Europe show that there will be a continuing and growing need for conventional gas in the EU, especially now that the future of nuclear generation seems once again to be called into question.

As such, it will remain a central response to the EU’s manifold energy challenges for a long time to come. Securing sufficient and reliable supplies of natural gas is therefore of key importance to European energy security.

The European Commission has embraced this idea and included the notion in its stump speech that it welcomes all new gas supply pipelines to Europe. And indeed, 2011 will see important progress in that respect. Nord Stream, the Baltic Sea pipeline that connects Russia with northwestern Europe, will come on-stream this autumn, ultimately increasing Europe’s capacity for gas imports by 55 billion cubic meters per annum.

When studying the fine print of current political language, however, it becomes clear that Brussels’ approach to new supply pipelines is not as evenhanded as some may want to suggest. In fact, only those new gas pipelines will be eligible for the title of “EU priority project,” which helps to diversify both supply routes and supply sources. This marks a major policy shift away from established energy partners, including Russia and Norway, and bars their gas pipeline projects from any formal support of the European Union. I strongly believe that it would be a mistake to play off the legitimate policy goal to access new gas sources against the need to strengthen transport routes to long-standing suppliers. In the wake of the Ukrainian transit crisis, the EU adopted a new policy stipulating that member states must be prepared to withstand the disruption of their most important supply infrastructure (the so-called “N-1 principle”).

Meanwhile, with Wintershall, energy companies from 10 European countries accelerated the planning for South Stream, which will grant southeastern Europe direct access to Russian gas fields. When it is completed in 2015, South Stream will add badly needed capacities to the European gas system and drastically reduce its vulnerability to major pipeline disruptions, wherever and for whatever reasons they may occur. South Stream supports Europe’s N-1 policy. As such, it certainly deserves the full backing of the European Union.

I am aware that South Stream still faces a number of misperceptions, which I would like to address.
One theory asserts that South Stream serves to re-route Ukrainian transits in order to punish Kiev, leaving Ukraine out in the cold. A look at the numbers puts this claim into perspective: Ukraine handles transit of up to 120 billion cubic meters per year; South Stream will have an annual capacity of 63 bcm. Ukraine will necessarily remain an important pillar of Russian gas exports to Europe. It will, however, no longer be the one basket into which to put all the eggs. This is the logical flip side of any energy security strategy and an understandable hedging strategy for a stock listed company like Gazprom.

Others proclaim the opposite fear, that South Stream may swamp the European market with excessive amounts of new Russian gas. I would like to temper these fears by recalling that even after the completion of the Nord and South Streams, around 70 percent of Europe’s gas supplies will continue to come from non-Russian sources. This situation can hardly be described as one-sided dependency, particularly as Gazprom relies on Europe for roughly 70 percent of its revenues.

The fact that South Stream is primarily an investment in energy security, not in boosting the market share of Russian gas, also means that it does not compete with other pipeline projects that intend to import fresh supply volumes from other possible gas sources. South Stream does not oppose these projects. It does claim the right, however, to be treated fairly and to operate on a level playing field. I want to encourage EU leaders not to look away from Russia when defining Europe’s energy future. Gazprom’s deliveries to Europe have been remarkably stable for more than 40 years. Russia hosts one-quarter of the global proven gas reserves, enough to cover European gas demand for another century. South Stream will improve the energy security and functioning of the European gas market while generating commercial profits, jobs and tax incomes across much of the region. It is a pan-European project that is worth supporting.