May 21, 2014, 11:31 a.m. EDT
Opinion: Does Europe want natural gas more than it wants to stand up to Putin?
The South Stream pipeline would bypass Ukraine and deliver Russian natural gas to Western Europe via Bulgaria and Serbia.
SOFIA, Bulgaria (MarketWatch) — If the European Union is serious about punishing Russia for grabbing Crimea and destabilizing Ukraine, it can show it by enforcing its own regulations and halting Russia’s planned gas pipeline across Bulgaria to Western Europe.
The $20 billion South Stream project is the centerpiece of Russia’s strategy of bypassing Ukraine while still remaining the principal gas supplier to the European Union. Gazprom, the energy giant closely linked to Vladimir Putin, is the main driver of South Stream, whose first phase places 500 miles of pipe under the Black Sea to the Bulgarian coast. Construction inside Russia has already begun.
Bulgaria’s pro-Russian socialist government calls South Stream strategic and vital to securing its energy security. But as a member of the European Union Bulgaria is obliged to follow EU regulations that require third-party access on connections into the EU energy grid.
Gazprom has not requested a waiver, arguing that third-party and environmental restrictions were not applied to its Nordstream pipeline under the Baltic to Germany, which was completed two years ago. EU officials say Russia’s annexation of Crimea is a game changer that puts South Stream in a different category.
Energy specialists say if the EU hangs tough, South Stream could be delayed for many months, if not longer. For its part, the European Parliament last month passed a non-binding resolution calling for South Stream’s cancellation.
Arrayed against energy sanctions are powerful business interests in Germany, Austria and Italy that would profit from the pipeline. Even after Crimea, Austrian energy firm OMV signed an agreement with Gazprom to bring South Stream to its gas hub near the Austria-Hungary border by 2017.
Ukraine’s May 25th election is likely to be an important marker determining South Stream’s fate. The EU and the U.S. have said that if Russia interferes with the voting they will move to sectoral sanctions that likely would include oil and gas.
American officials have long urged Europe to lessen its dependence on Russian energy. Currently Russia supplies one-third of EU’s natural gas. And while Russia’s Ukraine actions have altered the strategic balance, a proposed alternative pipeline called Nabucco that would have brought Central Asian gas to Europe fell apart last year.
Russia has found willing allies for South Stream in Bulgaria and Hungary as well as non-EU member Serbia. Russia promises that South Stream will create 5,000 construction jobs in those countries, where unemployment is high. The pipeline would pass through northwestern Bulgaria, the EU’s poorest region, where the jobless rate exceeds 25%.
Russia’s intense lobbying is paying dividends. Serbian President Tomislav Nikolic calls South Stream the most important foreign investment in his country. “Russian gas,” he says, “is the realization of Serbia’s energy dream.” However, as an aspiring EU member Belgrade wants to avoid conflict with Brussels.
EU Energy Commissioner Guenther Oettinger, who is German, has been ambivalent on the issue. He told London’s Financial Times that in light of events in Ukraine he is not inclined to grant Gazprom a waiver on South Stream. However he told Vienna’s Der Standard newspaper that the pipeline “is not a problem for me. We don’t want to block it, but it does not have priority either,” Oettinger emphasizes that South Stream merely reroutes Russian exports without bringing additional gas to Europe. Nordstream and South Stream together could handle most of the Russian gas that currently transits Ukraine.
Former Czech Prime Minister Mirek Topolanek says a Russian aim in the Ukraine crisis is to push through the construction of South Stream. Topolanek who was prime minister during the 2009 Russia-Ukraine gas crisis, says Moscow’s intention then was to hasten the construction of Nordstream from Russia to Germany. Former German chancellor Gerhard Schroeder holds a top job in that Gazprom-led consortium.