By Dimitrije Tasic
Instead of transporting gas, as was planned starting from 2017, a few days ago Russian President Vladimir Putin officially abandoned further construction of the gas pipeline South Stream, almost eight years after the beginning of the project. This Russian-European gas pipeline was supposed to bypass Ukraine, transporting natural gas from Russia through the Black Sea to Bulgaria, Serbia, Hungary, Slovenia, and ending in Austria.
The South Stream project created controversies due to its non-compliance with EU competition and energy legislation, such as the Third Energy Package, which aims to introduce more competition by breaking up energy monopolies. Simply put, the Third Energy Package mandates that the company that owns the pipeline (in this case Gazprom – a Russian state-owned company) cannot be the sole-supplier of the gas. The intent of the Package is to foster competition and diversify EU’s dependence on Russian gas. Some members of the South Stream consortium, such as Bulgaria, were prepared to defy this EU legislation as its close ties to Russia took precedence over its adhering to EU law. However, the EU, supported by US, has recently taken a tough stance on this issue by warning Bulgaria and other EU member states that they would be in breach of EU law and would be held responsible. Intimidated by these warnings, Bulgaria recently suspended the construction of the South Stream. Putin’s decision to abandon the South Stream entirely was essentially a reaction to Bulgaria’s U-turn.
Supplies of natural gas are a very important issue for both the EU and Russia. The EU is dependent on Russia for 30 percent of its gas supplies and 53 percent of its total energy supplies. More so, for some eastern member states, Russia is the sole supplier of gas. The seriousness of the EU’s dependence on Russian gas became apparent several times in the last decade. In 2006 and 2009, several EU member states suffered major gas shortages when Russia cut off its gas deliveries to Ukraine, a traditional gas transit route. Some EU countries experienced humanitarian emergencies. In response to these energy supply cutoffs and the potential for future supply interruptions, the EU has sought to increase its energy security by exploring supply diversification options. In particular, alternative transit routes for Russian gas were sought since EU leaders identified disputes between Russia and gas transit states, Ukraine and Belarus, to be the major problem for the EU’s energy security. Consequently, the EU supported construction of the Nord Stream pipeline, which directly connects Russia and Germany, Russia’s largest gas importer. Construction of the South Stream was also sought as a way to avoid a problematic gas transit through Ukraine and Belarus.
For Russia, gas exports, and energy exports overall, are also very important as they are its main export product. Energy exports account, in fact, for almost 80 percent of Russia’s total export revenues, and the EU is the main importer of Russia’s energy exports. In other words, the EU needs Russia as much as Russia needs the EU. Also, the South Stream was an opportunity for Russia to consolidate its grip over Southeastern and Central Europe by using gas supplies as political and economic leverage. It seems obvious that both Russia and the EU are aware of their mutual economic dependence and how it affects foreign policy options for both of them. It also seems obvious that they are both attempting to reduce that dependency. Therefore, Putin’s previous decision to sign two significant gas agreements with China, and his most recent agreement with Turkey, are not surprising. Putin is clearly attempting to create a situation for Russia in which the South Stream is no longer a priority. During his most recent visit to Turkey, he agreed to increase gas supplies to Turkey via the existing gas pipeline Blue Stream, and to lower the price of these deliveries from January 1 by about 6 percent. In addition, Putin mentioned that if it is evaluated as feasible, he intends to make the Turkish territory that is on the border with Greece (and therefore the EU), the so-called “gas hub” for consumers in Southern Europe.
South Stream gas pipeline was supposed to diversify EU gas imports away from Ukraine, and transport natural gas from Russia through the Black Sea to Bulgaria, Serbia, Hungary, Slovenia, ending in Austria.