Russia cancels the planned South Stream gas pipeline

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Vladimir Putin, the president of the Russian Federation, announced that his country resigns from the plans of building South Stream Gas Pipeline.

It was a strategic project both for Russia and for European countries (mainly Bulgaria, Hungary, Slovakia, Serbia and Austria). After the crisis in Ukraine, when the delivery of gas to these countries was threatened, it seemed that South Stream is necessary. The reason is that it was to pass by Ukraine and was to guarantee energy security of the southeastern Europe. The project was very important not only for the economies of these countries, but also for the biggest E&P companies of the region: OMV (Austria) and ENI (Italy). South Stream was to be the second largest investment in the field of pipelines in Europe in the last years. The first was Nord Stream, which was a sticking point in EU, connecting Russia and Germany, passing by Estonia, Lithuania, Latvia, Poland, Belarus and Ukraine.

The official reason of abandonment of the plan is that the position of European countries in the matter of the investment is not constructive. For example, the investor has not received all the necessary permissions for the construction in Bulgaria. But Bojko Borisow, the prime minister of Bulgaria asserts that his country supports the investment and the preparations still go on.

Specialists and politics indicate other reasons which might lead to such a decision of Russian authorities.

First of all, after the crisis in the eastern Ukraine and the annexation of Crimea, Russia has to face more and more political and economical problems, although its authorities will never admit it. Some European politics, especially from Ukraine, convince that it is only a political decision and its aim is to punish EU.

The second reason arises from the first one. Political and economical sanctions of EU and US put on Russia brought about serious financial problems to Russian companies, amongst them for the state-owned Gazprom. Maybe the South Stream is too big a burden to bear by the giant.

The third reason may be the price of oil and gas, which is falling down for many days. It is not profitable to invest in such a huge project (its costs are estimated to €40 bn), when the situation is uncertain and unstable.

The next reason is the potential modification of the strategy of Gazprom. The company creates new contacts in southeastern Asia and some people claim that soon some plans of building a gas pipeline to China will be prepared. It can be realized in about 5 years. Such change of strategy can be essential for the future of Gazprom as the approach of European economies also changes its course. European Union is making efforts to start a common energy policy. It looks for new sources of energy (mostly renewable energy, but also nuclear power) and for new contractors of oil and gas. Europe opens its doors for LNG (liquefied natural gas) through construction of LNG terminals in Świnoujście (Poland), Klaipeda (Lithuania) and Omisalj (Croatia). The investments will enable Europe to receive LNG from Qatar and North Africa. From 2019, when the Trans Adriatic Pipeline will be finished, also gas from Azerbaijan will enter Europe.

Thus, Europe will get independence from Russian oil and gas and the Old Continent will no longer need so many pipelines transporting Russian gas. Even given that Soyuz and Brotherfood crossing Ukraine will be cancelled, Jamal and Nord Stream will be enough to provide Europe with gas from Russia.

 “It may a bluff, to pressurise the Bulgarian, Serbian, Hungarian and Austrian governments to unite behind accelerating the project and make a better case for it to the European Commission” – says Martin Vladimirov, an energy specialist at the Centre for the Study of Democracy in Sofia. It may be true, because for Gazprom abandonment of the project can be the first step to loss the European market.

What can we, common gas users, do? I think we can take a bucket of popcorn and wait for the continuation of the matter.

Was Russia’s South Stream too big a ‘burden’ to bear? |BBC News Europe

Pictures:
www.gazprom.com

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Joanna Wilaszek

Editor-in-chief of YoungPetro, for almost three years engaged in work of the editorial board. Member of the board of AGH UST SPE Student Chapter and a fourth-year student of Mining and Geology on Drilling, Oil and Gas Faculty at AGH University. Her hobbies are: travelling, dance and skiing.

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