News Column

Putin Marks New Gas Victory with South Stream Llaunch

Dec 7, 2012

Ulf Mauder, dpa

Russian President Vladimir Putin and state-controlled gas giant Gazprom have secured another victory by launching construction of the South Stream pipeline under the Black Sea to take Russian gas to southern Europe.

The 2,380-kilometre pipeline from near Anapa is due to start transporting gas to Greece, Italy and Austria from 2015. It will form a counterpart to the Nord Stream line supplying Russian gas directly to northern Germany under the Baltic.

Coming ashore at the Bulgarian port of Varna, the pipeline will run through Serbia, Hungary and Slovenia to Tarvisio in northern Italy. Construction costs are estimated at 20 billion dollars, with companies from around 10 countries participating along the route.

While the Russians prefer to highlight the pipeline's contribution to secure energy supplies in western Europe, it is also seen as boosting Russian state coffers that are highly dependent on energy sales.

The pipeline will also reduce Russia's reliance on Ukraine as a transit country for gas sales to the European Union. The most important transit country to date, Ukraine has sometimes proved an unreliable partner, with crises in January 2006 and in 2008-09.

South Stream is regarded as a competitor to Nabucco, an EU-backed pipeline project which will draw gas from Azerbaijan and Turkmenistan along a route through Turkey - if it is ever built.

Western analysts have raised concerns over increased dependence on gas from Russia, which has the world's largest gas reserves.

But Gazprom claims South Stream aims to supply Europe's energy needs - the same way as Nord Stream does.

The losers are European countries and companies backing the Nabucco pipeline that would run under the Caspian Sea with the aim of circumventing Russia completely.

Some analysts see Moscow as pulling out all the stops to cement its dominance in the gas market and to try to forestall gas from Central Asia being piped to Europe.

By 2019, South Stream is intended to have four lines with a total capacity of 63 billion cubic metres a year, matching the needs of 38 million households, or about 10 per cent of projected EU consumption in 2020.

"The project is truly unique by international standards with a view to the number of participating countries," South Stream spokesman Sebastian Sass told dpa.

Comparisons with its northern sister show the ground-breaking nature of South Stream, with pipes laid up to 2,250 metres deep on the sea floor, 10 times the depth in the Baltic.

The hot phase, when the pipe is welded and laid under the sea under high pressure, will start in 2014. Nearly 930 kilometres of steel will be placed in Russian, Turkish and Bulgarian Black Sea waters.

Responding to concerns about eastern and southern European dependency, International Energy Agency director Maria van der Hoeven stressed at the construction launch ceremony that Algerian and Norwegian gas continued to provide competition in the EU market.

All partners would get similar treatment, van der Hoeven said, describing Russia as a reliable partner for the EU. Companies operating on the EU market need to be "flexible in price and access," she stressed.

Nevertheless, the Russians have also faced criticism. The European Commission is now investigating allegations of a price cartel and unfair business practices, much to the annoyance of Putin and Gazprom.

The Russians are demanding special legal status for South Stream as a Trans-European Network, with Gazprom hoping to circumvent the EU's monopoly rules in this way.

But many analysts believe the EU is in a strong negotiating position, with gas consumption now in decline and supplies plentiful.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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