South Stream Shifts Priorities
Recent information regarding the ongoing Southeastern and Central European natural gas pipeline project of South Stream, point out that a significant shift in priorities is in motion.
More specifically, the Head of the Project Management Department of Gazprom, Leonid Chuguno, stated to both Greek and Italian stakeholders that the proposed pipeline has in effect, postponed its route from Bulgaria to Greece and then underwater to Otrando-Italy.
The main reason is the present lack of market criteria as Gazprom puts it, meaning that it does not view either Greece or the Southern Italian gas markets as capable of absorbing gas quantities of around 10 billion cbm per year, as envisaged initially in the plans of South Stream.
Thus, it was added that if Greece is interested and capable to buy more gas in the future, it should rely in the existing Bulgarian-Greek connection that provides around 2.8 billion cbm per annum to the country. Regarding Italy, Gazprom relayed that it is very much interested in the Northern Italian market where the basis of the country's major industries and most consumers are located.
For the above reasons it was concluded South Stream will pursue the route from Bulgaria-Serbia-Hungary-Slovenia-Italy and Austria route. Thereafter, quantities could be transferred to the South of Italy via the domestic pipeline network.
On the other hand, Gazprom stated once more its strong interest in acquiring the Greek natural gas company DEPA and disconnected the South Stream project from the privatization of that company. This latest culmination points out that Gazprom is proceeding into a business tactic that is both force concentrated and force dispersal at the same time in order to overcome a serious of financial, regulatory and geopolitical hurdles.
First of all there is the issue of the EU's Competition Directorate that is pressing heavily Gazprom regarding potential monopolistic practices for the supply of the member states.
Just after the announcement regarding South Stream's routes, the spokeswoman for Energy Commissioner Guenther Oettinger, Marlene Holzner. stated that " It was never communicated to the (European) Commission that South Stream has a final route...We don't regard this as a final investment decision."
Since South Stream is not strictly a Gazprom plan, but it is actually a collaboration of that company (50% share) along with ENI (20%), EDF (15%) and Wintershall (15%), the Russian company has to take care that this delicate balance of multiple European energy companies does not run into issues with the all-powerful competition commission. Thus by "sacrificing" the Southern leg of the pipeline (Greece-Italy) it both reduces construction and operational costs of the pipeline and also reduces fears of encompassing the markets of both these countries to an extent that the EU could not turn a blind eye to. This is force concentration tactic, since now Gazprom is able to focus on one route and engage even more actively with the countries participating to the route, the most centrally located one being Serbia which is not an EU member, thus not liable to any pressures of regulatory level by Brussels.
On a second level, by re-affirming its commitment to buy DEPA, it seems that Gazprom is viewing Greece as an ideal location to be used for LNG exports to the world markets.
DEPA has already a domestic pipeline network that links with most major ports of the country, along with an LNG terminal and several unused potential gas storage facilities on coastal regions. By adding to the fact that Greek-ship owners have become over the past few years major players in the global LNG transportation business environment, Gazprom may be possibly relying on that option to open a new market for its gas exports that first of all is not going to be subject to EU competition regulations since the commodity is going to be exported to non-EU countries such as India with LNG vessels via the Aegean-Suez-Indian Ocean route.
Furthermore the collaboration that has been observed between Gazprom and Israeli companies regarding Eastern Mediterranean gas reserves, further indicates that the interest of the Russian company about DEPA is subject to a strategy of expanding into sea gas trade, by linking its disperse interests (and that of the Russian energy policy as a whole) in Greece, Cyprus, Syria and Israel with the additional interests Russian companies retain in Iraq and Iran.
That is force dispersal and diversion, since it opens up a new "front" for Gazprom by neutralizing opposition forces that were worried about competition and regulation affairs, but also relieves pressure for the present Greek and Italian energy strategies that rely on the Trans-Adriatic pipeline project (TAP) to supply gas from Azerbaijan. In that sense Azeri gas could be exported to these markets and the Southern Corridor could be established, without causing a loss on Gazprom's market share which could be substituted by the opening of new markets.
Gazprom, by establishing a "Modus Vivendi" with TAP's shareholders (Statoil, EGL, EON), manages potentially to engage almost the majority of major European gas businesses in long-term "truce" and acquires a certain leverage over its competitor SOCAR, that will also pay attention to the above culminations and may even be tempted to proceed with LNG plans as well.
Lastly, two certain assumptions could be made, based on the latest developments. First and foremost, from now on the main pipeline competition takes place exclusively in the Northern Southeastern Europe between Nabucco West and South Stream and secondly Gazprom's tactics resemble military maneuvers, indicating quite possibly that this company administers itself not only as corporate organization, but also as a military one, that takes its business decisions based on armed forces traditions, mentality and judgment, surely an interesting aspect when examining the modern-day European natural gas market.
Note: “Force concentration” & “Force dispersal” are two basic principles of military tactics since ancient times.