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    South Stream Saga Coming to an End

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    Oksana Teplinskaya
    Economics in 2014 (10)
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    The construction of any pipeline is often as much a political challenge as it is an engineering one. The South Stream gas pipeline, which was officially cancelled on December 1, 2014, had been both from the very beginning.

    The South Stream natural gas pipeline was designed to transport 63 billion cubic meters of Russian gas annually into central and southern Europe. It involved seven countries and was planned to span over 2,300 km.

    The pipeline's route had been changed several times since it was officially announced back in 2007. From the very start it faced a strong rival – the Nabucco project, which was eventually cancelled in 2013 due to a number of geopolitical and financial issues. This year’s friction between Gazprom and the European Union over South Stream made some analysts wonder whether the project was going to be completed at all, with some researchers saying South Stream might turn into Russia's version of Nabucco. One of those analysts was Dr. Fred Beach, an assistant director for policy studies at the University of Texas’ Energy Institute in Austin.

    “South Stream was very aggressive and very expensive, and obviously several political elements involved in it. But just as the project like South Stream is very expensive, it also takes a great deal of time to build, and as we’re seeing the market can change very rapidly based on changes in production and supply as well as changes in politics and national actions. So I’m not surprised to see that the project has collapsed but just as quickly as it collapsed it could be theoretically turned back on again,” Dr. Fred Beach said.

    Whether the cancellation (which quickly became known as the divorce of the century) is permanent remains to be seen, but the announcement of the South Stream saga coming to an end was immediately followed by a presentation of the ‘New’ South Stream – a pipeline of the same capacity to Turkey, Gazprom's second largest export market, called Blue Stream. The two streams could round each other out in a way, says Patrick Young, Executive Director at DV Advisors.

    “The difficulty for Russia in terms of piping its gas to the rest of the world is that quite clearly in such a vast single nation the gas is produced at very large distances from one side of the country to the other. And that’s why in many ways South Stream and Blue Stream were both highly complementary when they came together because there’s a need for Russia to be able to pipe its gas both to the south as well as effectively to the east or southeast and also to the west,” Patrick Young said.

    Some industry watchers say the new project might strengthen Russia's position on the gas market, which has weakened lately. True, the cost of this show of strength is rather high – $10 billion dollars already invested in the construction of infrastructure on the Russian part, $6 billion invested in contracts for its marine section, and all the preparation work done to begin laying the pipeline through the Black Sea. On the other hand, experts say the construction of Blue Stream might come out cheaper, and building materials could be redirected. But it is quite obvious that the cancellation of the South Stream project means a new stage in Russia’s relations with Europe and its partnership with some other countries. As DV Advisors’ Patrick Young says, Russia has pivoted – and quite successfully.

    “We’re seeing a much greater interest in Moscow at the moment in doing business with neighboring emerging countries, obviously China has been one of the countries topping the list, and also more recently Turkey, and that’s a very exciting option because obviously that’s a vastly growing nation, the satellites around it have got a huge demand for gas as they’re increasing their production, and that gives us a very interesting outlook going into 2015,” Patrick Young said.

    This monumental change of direction goes to show Russia’s export options are in no way limited to Europe. 

    Topic:
    Economics in 2014 (10)
    Tags:
    economy, gas, South Stream gas pipeline, Europe, Russia
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