Dim prospects for South Stream – 1

Innokenty Adyasov, member of the Expert Board of the Russian State Duma Committee on the CIS Affairs. Exclusively to Vestnik Kavkaza

The news of the readiness of Russia to finance the construction of a part of “South Stream” in Serbia revived an interest in this project. However, there are a lot of questions which touch on not only Russia, but also its partners in the Caspian region.

Where does the money come from?

The final cost of the project is still unknown. The deputy head of Gazprom, Vitaly Markelov, states that the company still has not decided on the cost of the sea part of the gas pipeline “South Stream” which is planned to be built through the Black Sea, passing by Ukraine. “At the moment preliminary work is being carried out. Yesterday, for instance, we had talks on pipe supplies for underwater and surface parts,” he said.

At the moment, the works are being carried out at the so-called “East corridor” – a system of gas pipelines running to the south of Russia, the bank of the Black Sea. According to Markelov, today the “East corridor” is 880 km of pipelines, 230 km of which are ready.

According to the current project, the general length of South Stream is more than 2400 km, 920 of which – the sea part which is under control of the consortium South Stream Transport AG (Gazprom – 50%, Eni – 20%, Wintershall – 15%, and EdF – 15%) and 1500 km – the surface part (through Bulgaria, Serbia, Hungary, Slovenia).

In December 2012 the Minister of Energy and Natural Resources of Turkey Taner Yldyz said that Ankara didn’t plan to participate in the gas pipeline project South Stream because it was aimed at participation in the projects of Nabucco West and TANAP as a shareholder.

Some time ago Ankara presented personal complaints to the Italian Eni. The head of the Turkish Ministry of Energy stated on Ankara’s cancelation of participation with Eni and freezing its projects in the country. This decision was made due to Eni’s cooperation with the Republic of Cyprus in development of Cyprus shelf. Perhaps the goal of these statements is imposing a bargain on Russia and making Gazprom decrease prices on Russian gas imported by Turkey.

The position of the key country for transit within South Stream and within its rival, Nabucco pipeline, Bulgaria, is unclear. Ahead of the parliamentary elections the Bulgarian government stated on necessity of reconsideration of the investment decision on the Bulgarian part of the pipeline, insisting on the fact that the former authorities agreed to participate in the project under unprofitable conditions.

Sofia doesn’t like that the Bulgarian part is too expensive, and the country won’t get profit from the project for a long time.

At the moment, it is planned that, like in Serbia, the project will be completely financed by the Russian side, while Bulgarian Energy Holding will return money to Russia by means of withholding transit payments at the rate of $1.7 for 1 thousand cubic meters per 100 km. It will take about 25 years for paying Russian investments, i.e. Sofia won’t get direct profit from the project during this period.

Where does the gas come from?

Gazprom has many times stated that it has enough gas for South Stream. It is required that the development of new gas deposits and reorientation of gas supplies from the Ukrainian direction which is chief for Gazprom at the moment will enable to fill the pipeline.

At the same time, Russia says about its interest in joining of countries-producers of gas to South Stream – first of all, Azerbaijan and Turkmenistan. According to some experts, the main goal of the step is to take away resources from the rival pipelines, firstly Nabucco.

Gazprom constantly offers Azerbaijan contracting whole export gas at a very high cost. However, Baku continues consideration of alternative export routes. In early 2013 the Executive Director of the State Oil Fund of the Azerbaijani Republic Shakhmar Movsumov stated that Azerbaijan supports South Stream Project. “We are preparing for financing of the Azerbaijani part of TANAP project. At the moment the first stage of the project is taking place. However, we haven’t defined our share in the project and other details yet,” Movsumov noted.

50% of TAP and Nabucco West can be offered to the Azerbaijani oil company SOCAR and the consortium Shakhdeniz which includes leading energy companies of Europe.

To be continued