Oettinger's Gas Bluff

Oettinger's Gas Bluff

Despite unprecedented pressure from the European Commission, the implementation of the South Stream project continues according to the original schedule. In the next three weeks a long-awaited agreement for the construction of the pipeline in Serbia will be signed. The Serbian section of the pipeline is of key significance, as two branch pipelines are to be laid on the territory of Serbia, and there is a large underground gas depot at Banatski Dvor. These branches are those which were previously planned to Croatia and the Republika Srpska (Bosnia and Herzegovina). Furthermore, Gazprom does not rule out the possibility of including Kosovo in the project (on terms which are in agreement with Moscow's political position on Kosovo, of course). The creation of such a branched infrastructure will turn Serbia into the main link in the energy security system not only of the Balkans, but of all Central, Eastern and Southern Europe.

A positive impulse in the process of implementing the South Stream project was the vote of confidence for the current government of Bulgaria, which, despite pressure from Brussels and its own opposition, continues to defend its national and state interests in the spheres of energy and cooperation with Russia. At parliamentary hearings, Bulgarian Minister of Economy and Energy Dragomir Stoynev emphasized that the cabinet is striving to implement the South Stream pipeline construction project. 

«South Stream remains for us a strategic European project, which we are striving to implement in spite of opposition pressure», stated Dragomir Stoynev. According to the minister's testimony, the project is being implemented on terms advantageous to Sofia: «We were able to lower the interest rate on the loan for construction of the pipeline from 8% to 4.25% per annum and obtain a five-year grace period. The loan will be repaid using dividends from the operation of South Stream over a period of 22 years, and 20% of these can be spent on the needs of the Bulgarian energy holding». 

The position of the Bulgarian government on this issue has been strengthened thanks in part to the successful completion of a tender for engineering development, delivery of equipment and materials, construction and installation work, personnel training and commissioning of the South Stream pipeline on the territory of Bulgaria. Companies from Austria, Belgium, Bulgaria, Germany, India, Italy, Russia, Switzerland and Japan took part in the public tender, which started in December 2013, and the winner was Stroytransgaz Consortium, which includes the Russian company Stroytransgaz and Gasproekt Jug from Bulgaria. The Bulgarian government has stated to Brussels that the tender «conformed to European Union norms». 

At the same time, yet another key Balkan state, Greece, has been showing increasing interest in the project. Minister for the Environment, Energy and Climate Change Giannis Maniatis has called Russia a «reliable supplier of natural gas and a reliable partner» and has stated that his country would also like to build a branch of the South Stream pipeline on its territory. It is telling that, according to available information, this issue was discussed several years ago, but it was nipped in the bud by Greece during discussions. 

At a time when gas supplies to the European market from other suppliers are falling, the advantages of collaboration with Russia have become obvious for Belgrade, for Sofia and for Athens. However, the European Commission refuses to admit the obvious. This follows, in part, from the most recent statement of EU Energy Commissioner Gunther Oettinger, who rushed to surround his support for the South Stream project with scandalous political conditions. In an interview with Frankfurter Allgemeine Sonntagszeitung, he stated that a «political decision» on the construction of the South Stream pipeline is not possible until Russia recognizes the government in Kiev. Oettinger provocatively urged Russian partners to «adhere to the practices of international law»... [1]

One of the main laws of any game, including geopolitical ones, is not to get too caught up in it. Unfortunately, the statements that have been sounding from Brussels in recent weeks testify to the fact that many EU leaders are on the brink of doing just that and will leave Europeans with no Russian gas. After all, Russian projects are characterized by the low cost of gas, profitable transit payments for project participant countries, and reliability.

In recent years the European Union has been staking on Azerbaijani gas as an alternative to Russian gas, but these expectations are not paying off, as Azerbaijan would only supply 10 billion cubic meters a year, while the South Stream is designed to supply 63 billion cubic meters. Furthermore, the relevant stages of Azerbaijan's Shah Deniz gas field will be commissioned no earlier than 2020-2022. And the other potential participant of European Union projects, Turkmenistan, is oriented toward Russia and China (several gas pipelines to China have already been built).

In blocking energy cooperation with Russia, the European Commission is essentially not offering consumers any alternatives.  In other words, it is bluffing.

Russia, on the other hand, in spite of Brussels' politicization of the situation, does not intend to renege on its own obligations in the South Stream project. Alexey Miller, head of Gazprom, has emphasized that the European Commission has no legal basis for stopping the implementation of the project: «The project is being implemented in strict compliance with the adopted schedule. There is not a month’s delay from the initially agreed timeframes. The offshore section construction is within the schedule, as well as the operations in Bulgaria, Serbia and Hungary. It is absolutely certain that the first gas via the first string of South Stream’s offshore section will be delivered to Bulgaria as soon as at the end of the next year». 

However, Russia will not act to its own detriment. V. Putin said as much recently at a meeting with the heads of world news agencies: «Of course we will carry out this project. If we encounter further problems with South Stream and Brussels keeps creating obstacles for the project, we will look at other possibilities such as going through countries that are not EU members. This would simply mean that the European Union ends up with yet another transit country. I don’t understand why those people in Brussels are doing this. But we are committed to carrying out the Nord Stream and South Stream projects, if we can do so without hindrance..»

[1] Frankfurter Allgemeine Sonntagszeitung, 01.06.2014