26 June 2014, 14:49

South Stream plan faces tension between Russia and the EU

South Stream plan faces tension between Russia and the EU
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From the very start of the South Stream story, when the Chief Executive Officer of Italy's Eni Paolo Scaroni and Gazprom's Vice-Chairman Alexander Medvedev signed a memorandum of understanding for the construction of a new natural gas pipeline in Rome seven years ago, the rival Nabucco pipeline was considered to be the key implication that the project might see in the future.

Nabucco is a proposed natural gas pipeline from the Turkish-Bulgarian border to Austria, with its main suppliers being Iraq, Azerbaijan, Turkmenistan, and Egypt. The original project, aimed at reducing European dependence on Russian energy, was backed by several EU member states and the US.

However, in 2013 due to a mixture of geopolitical and business factors the Nabucco project was canceled. Instead, there emerged two other ones – the Trans Anatolian Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP). Maxim Edelson, Senior Director, Natural Resources EMEA at Fitch Ratings in Moscow, says they can't be viewed as South Stream's competitors.

“Essentially it's one pipeline, composed of two bits, which is to transit the gas from Azerbaijan to Italy. The first part will take the gas from Azerbaijan to Turkey, while the second part will pipe the gas from Turkey to Italy. But the size of that pipeline complex is really small, it's only about 10 bcm versus 63 bcm of South Stream,” Maxim Edelson said.

Now that the construction is just about to begin, the South Stream plan has become a focus of serious tension between Russia and the European Union. Just recently, the EU Commission said it breached Union regulations.

There's quite a bit of pushback form the European authorities. I guess the main rationale is that Europe wants the gas producers to have equal access to the pipeline, and that's something that Gazprom obviously doesn't want to do.

However, most analysts say in a project as sweeping as South Stream there could be thorn in the way. The current plan is to finish the construction of all strings of the pipeline by the end of 2017.




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