Mikhail Krutikhin: South Stream's Rude Awakening
The year began with bad news for Gazprom’s South Stream project.
The proverbial ink was probably still wet on the signatures of the company’s agreements with Bulgaria, which agreed to host the vital leg of the Russian pipeline, when it became known that the Balkan partner was going ahead with an alternative solution.
The Ministry of Energy and Economy in Sofia announced that Bulgaria and Serbia had agreed to build an interconnector. A 150-kilometer link will cost little to these countries because the EU is to provide most of the financing, estimated to total 48 million euros. The two-way pipeline will be able to deliver 2 bcm a year, covering most of Bulgaria’s demand for natural gas (the recent agreement with Gazprom was for 2.9 bcm). It will allow Bulgaria to import gas from western European hubs via Serbia, Bulgaria has completed the project’s feasibility study and plans to choose a builder by February 2014, the ministry said.
As Mikhail Korchemkin, the founder and managing director of East European Gas Analysis, noticed, the price of this diversification plan is about one-thousandth of the South Stream.
It could not be a big surprise for Moscow. Bulgaria’s 24 million-euro interconnector with Romania’s grid will be completed this year and a similar 200-million euro link with Greece is scheduled to be operational in 2015. A pipeline with Turkey is also being developed.
Another alarming report came from Vienna. The Shah Deniz consortium, led by BP and Statoil, signed there a batch of papers with the initiators of Nabucco West, including an agreement on ownership and financing. The partners will jointly design the future pipeline, a part of the EU’s Southern Gas Corridor, and the suppliers will be able to get 50 percent of it after a final investment decision. The current Nabucco consortium consists of Bulgaria’s Bulgargas, Hungary’s FGSZ, Austria’s OMV, Turkey’s Botas, Romania’s Transgaz, and Germany’s RWE.
The final destination of the Russian pipeline project is becoming a cause for worries in Moscow, too. Italy is building a large LNG regasification terminal in Brindisi, and it will become a major source of gas for southern Europe making South Stream redundant. Another LNG terminal in the Gulf of Saros, planed jointly by Turkey and Qatar, will erode the market role of Gazprom even more.
Planners in Moscow cannot fail to recognize the danger for their project—and the competition is going to be very hot among gas suppliers to Europe. Will Moscow persist in its determination to spend billions and billions on an extra pipeline that has only one plausible explanation, to punish Ukraine by leaving it without gas transit?
Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.