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South Stream pipeline quarrels

Nemanja Rujević / ag
December 17, 2013

Legal or not? A new Russian-European pipeline project has come to a screeching halt after intervention by the EU commission. To break an unlawful monopoly, it says - out of political motivation, say others.

Steel pipe before the ceremony for the construction of the South Stream gas pipeline in a field north of Belgrade
Image: picture-alliance/dpa

Deals between the Russian natural gas giant Gazprom and seven European countries had already been signed when the EU commission stepped in: the treaties would breach EU law, which stipulates that a company may not function as a pipeline operator and hold a monopoly as a gas supplier at the same time.

As a result, EU energy commissioner Günther Oettinger is set to travel to Moscow in January for renewed talks with the Kremlin, on behalf of the six EU member states - Hungary, Bulgaria, Croatia, Slovenia, Austria and Greece - as well as EU accession candidate Serbia.

In southern Russia, Bulgaria and Serbia, some first segments of the South Stream pipeline have already been installed. As early as by the end of 2015, Russian gas is scheduled to use the system to travel across the Black Sea into the EU. Its end points in the north are Austria and Hungary, its southern branch could, in the future, transport gas via Greece and the Adriatic into Italy.

"Not complying with competition rules"

"A gas pipeline is to work like a motorway for cars. Everyone may use it by paying according to tariff," says Marlene Holzner, spokeswoman for the EU energy commissioner. International treaties, however, wouldn't have provisions for that, "since [the pipeline's] entire capacity is used up by Gazprom itself," Holzner told DW.

At the Institute of Power Engineering of Dresden's Technical University, director Antonio Hurtado says that it's disadvantageous for customers when one company is in sole command. "By now it's an established fact that it's against competition law, when one business owns all parts of the value-added chain of a product," Hurtado told DW - which is the reason why the South Stream pipeline management ought not to be appointed through Gazprom.

From left, EDF's director general Henri Proglio, Wintershall's member of board of executive directors Harald Schwager, Russian Prime Minister Vladimir Putin, Gazprom CEO Alexei Miller and ENI's director general Paolo Skaroni shake hands after signing an agreement in the Black Sea resort of Sochi.
Signing for South Stream in Sochi - now the EU steps in as dealbreakerImage: AP

But not everyone shares this view: Russia is financing most of the 16 billion euro ($ 22 billion) pipeline. It should therefore also benefit from the project, says Jelilca Putniković, chief editor of the Serbia-based publication "Balkan Magazine."

"Let's say someone builds a house in Berlin. Does he then give up one third of its living space to others," she asks. "I don't see a reason for Brussels to ask Gazprom to share pipeline capacity with other gas providers." According to Putniković, the EU's strong reaction against Gazprom is also politically motivated. Similar to the crisis in Ukraine, the South Stream project, too, is being used "for a new round of locking horns" between Brussels and Moscow.

It's a trial of strength, in which Gerhard Mangott sees the position of the EU as questionable. Among other issues, the professor for political science at Innsbruck University points out the timing: "Why did the [EU] decision come only now? I found it absurd to hear that, until recently, the EU wouldn't have had any insight into those intergovernmental agreements." According to Mangott, the South Stream project increases energy security for the EU: "This isn't additional gas and an increased dependency on Russia, rather this is an alternative pipeline, which is more modern and less delicate in nature."

Solutions from Brussels

Due to the uncertain future of the project, banks that have been funding the construction of the pipeline with credits have become very careful. In the eyes of the EU commissioners, one possible solution to ending the quarrel is for Gazprom to install an independent pipeline management. That, in turn, could set the tariffs and allocate capacities. "In this case, Gazprom would still be the owner of the pipeline - but without any say in its daily business," says Holzner.

A map of the planned South Stream und Trans Adriatic Pipelines

Russia could also file an official request with Brussels for an EU rules exemption - as was the case with the North Stream pipeline. At the same time, this is something Moscow would like to avoid, Mangott says: "Russia doesn't want to submit itself to European rules, but instead refers to the international law. As soon as Gazprom files that request for exemption, South Stream will be completely subject to the decision-making process within the EU commission."

Competition for the TAP project?

There are accusations that Brussels is putting obstacles in the way of the South Stream project, as it would provide competition for the planned Transadriatic Pipeline (TAP) - accusations which Holzner rejects, adding, however, that "for us, South Stream is no priority. It would be an additional pipeline to bring Russian gas into Europe - gas, which will otherwise come via Ukraine." Also, Holzner says, the South Stream project wouldn't have the same impact as the TAP pipeline, which would offer access to new resources around the Caspian Sea.

But TAP is only going to bring 10 billion cubic meters of gas into Europe annually - an estimated six times less than South Stream. Critics and supporters of the EU's position in the South Stream dispute therefore agree in terms of one point: More pipelines into Europe are beneficial for its energy security and competition across the continent. So far, only one looser has been identified, for whom the construction of new pipelines bears certain negative effects: Ukraine, as it is so far the transit country of over half of all Russian gas deliveries into Europe.