South Stream halt is ‘casualty of sanctions’

The breakdown of talks between Russia and Europe over the South Stream pipeline is another example of diplomatic discord between Moscow and Brussels, but they still need to cooperate over gas for the next 20-30 years, economist Max Fraad Wolff told RT.

“South Stream looks like yet another casualty of sanctions and poor relations between Russia and the West,” Max Fraad Wolff, Professor of Economics at the New School, told RT.

On Monday, Russian President Vladimir Putin announced that Gazprom will deliver gas to Europe via Turkey, and not Bulgaria. Gazprom CEO Aleksey Miller confirmed the plan.

READ MORE: Putin: Russia forced to withdraw from S. Stream project due to EU stance

Russia will instead use the existing South Stream capacity, redirect an underwater section to Turkey and create a gas hub on the Turkish-Greek border to supply southern Europe.

Gas will be pumped from the Russkaya compressor station at the port of Anapa in the Krasnodar Region of Russia.

READ MORE: Gazprom to build new 63 bcm Black Sea pipeline to Turkey instead of S. Stream

On the left, the planned South Stream route, to the right, the Blue Stream pipeline to Turkey. Image from www.gazprom.com

Bulgaria, under pressure from Brussels, repeatedly stopped construction of the pipeline, to the dismay of Gazprom. The Bulgaria branch was planned to deliver gas through Serbia, Hungary, Slovenia, and Austria.

“It’s very clear that Bulgaria has tied its future to the EU, and the EU doesn’t enjoy a particular favorable relationship with Russia,” Fraad Wolff said.

Legal disputes between Gazprom and the European Commission have intensified over the crisis in Ukraine. The US and EU levied economic sanctions that limit the foreign capital it can borrow from the West, and blocked Western oil companies from participating in Arctic, shale, and deep-sea drilling projects in Russia. In response, Russia has banned the import of agricultural products, which has hurt EU trade.

The European Commission rules require that a single company doesn’t both produce and transport oil and gas. However, the policy was adopted after bilateral agreements were signed between Gazprom and EU countries that were to host the South Stream pipeline.

“Today’s tension with Russia will not be permanent, but the need for gas, and Russia’s enormous supply of gas, is at least for the next 20-30 years, a reality for Western Europe, full stop,” Fraad Wolff said.

In 2013, Russia sold 162.7 billion cubic meters of gas to Europe and expects to sell at least 155 billion cubic meters this year, or about one third of Europe’s total demand.

“The future will be the future where Europeans need access to Russian gas,” Fraad Wolff said.

Russia will still send gas to Europe via Nord Stream, a 55 billion cubic meter double pipeline that runs under the Baltic Sea to Germany. The Yamal pipeline will deliver gas to the UK market and central Europe and has a 33 billion cubic meter annual capacity.

The South Stream project, which was officially agreed in 2012, was seen as an important step towards energy security for Europe, as it would bypass politically unstable Ukraine and reduce the reliance on gas from North Africa.

Strategic partners in the South Stream project are Italy’s Eni, France’s EDF, and Germany’s Wintershall.