South Stream Goes On Amid Uncertainties About Final Route
Gazprom’s South Stream project proceeds despite escalating tensions over Ukraine, with the company’s management betting on Austria’s endorsement to overcome the hurdles posed by European institutions and possible frictions with Italy’s Eni.
On Tuesday, Gazprom’s Alexey Miller met Gerhard Roiss, Chief Executive Officer of OMV. They clinched a deal for the Austrian section of the project.
“The relevancy and the benefits of South Stream for Europe are undisputed. The South Stream project is aimed at enhancing the energy security of European consumers, which has always been Gazprom's top priority. In addition, it should be noted that Gazprom and OMV have a sound international legal basis for implementing this project, which is the agreement signed by the Russian and Austrian Governments in April 2010,” Alexey Miller, Chairman of the Company's Management Committee, said in a note released on Tuesday.
OMV's position differs quite significantly from Brussels' understanding of the situation, as European authorities repeatedly suggested that the South Stream project is a way to cement Gazprom’s position in Europe. And probably it is somehow the case, as the Memorandum signed on Tuesday by OMV gives Gazprom the right to participate in the Central European Gas Hub. It also provides the Russian company with access to OMV gas storages in Austria.
The note ‘South Stream gas pipeline: European endpoint in Austria’ also states that Wien could soon play a significant role in European energy security.
"This is an important step to significantly increase Austria’s security of gas supply and will further strengthen Baumgarten’s role as key hub for gas in Central and Eastern Europe. Our nearly 50 years lasting partnership with Gazprom has contributed to this successful step in further diversifying Europe’s energy supply routes,” OMV CEO Gerhard Roiss said the press release.
BUT WHAT ABOUT ITALY?
If Austria’s interest made the headlines, Italy’s involvement is becoming more difficult to understand. According to the initial South Stream project, which was announced on 23 June 2007 by Eni’s CEO Paolo Scaroni, the pipeline should have ended up in Italy. But there is a minor sign hinting at significant changes: South Stream's website changed in the last hours. It does not seem a simple coincidence that the picture and the page describing the route of the pipeline have been edited.
‘The route includes onshore sections passing through several European countries, as well as offshore gas pipelines across the Black Sea and the Adriatic Sea (in case of gas supplies to southern Italy),’ now reads the South Stream’s website.
In other words, hypothesizing a route change is not an intellectual gamble. It is much more real. In this context, it comes as no surprise that Scaroni said during a parliamentary hearing in Rome two weeks ago that the future of the South Stream pipeline is/was “ somewhat gloomy.” With the wisdom of hindsight, his declarations make complete sense.
What remains to be seen now is the rationale of such a change. What are the reasons that could push the South Stream project to change route? What are the reasons behind Eni’s U-turn?
“It will not be major quantities, but every cubic meter helps,” Scaroni recently told the New York Times, referring to the company’s intention to send spare gas to Ukraine through Slovakia. Eni's help to Ukraine could be a first clue, but uncertainties remain. If signs of change and tensions are evident, the rationale remains completely unclear.
To make the picture even more complicated, recent news indicate that the South Stream Transport B.V does not want open confrontation with the Italian company led by Scaroni. South Stream Transport B.V. is indeed an international joint venture between Gazprom (50%), Eni (20%), EDF (15%) and Wintershall (15%).
Coherently, the South Stream Transport awarded a €400 million contract to Saipem, which is a subsidiary of Eni. The contract relates to the construction of the second line of the South Stream Offshore Pipeline.
“According to this contract Saipem will perform additional supporting works, including engineering, coordination of storage yards, cable crossing preparation, and connecting the offshore pipeline to the landfall sections through so called “tie ins”. The works relating to the construction of the second line will end by the end of 2016,” reads a note released by Saipem on Tuesday evening.
This contract follows the major deal for the first line of the Offshore section of the project, signed on 14 March 2014. The EUR 2 billion contract was awarded to Saipem and to a Japanese consortium comprised of Marubeni-Itochu and Sumitomo (40% of total output), United Metallurgical Company (35%) and Severstal (25%).
In this sense, the complexities around the South Stream project are the ultimate sign of the uncertainties related to the standoff in Ukraine. Eni’s involvement and OMV’s participation are other two missing pieces of an incredibly complex jigsaw.
Sergio Matalucci