ECONOMY

East Europe scrambles for energy after Putin kills South Stream

Eastern European countries dependent on Russian gas are scrambling for alternatives after President Vladimir Putin blindsided them with a decision to scrap a pipeline bypassing Ukraine.

The prime ministers of the Czech Republic, Hungary, Slovakia and Poland met Tuesday to discuss energy security after Russia on Dec. 1 backed out of the South Stream pipeline following European Union objections on legal grounds.

The move leaves much of southeastern Europe dependent on Russian gas transiting crisis-torn Ukraine, cause for concern in a region that suffered shortages in 2006 and 2009 after Russia cut off supplies to the former Soviet satellite. The region’s leaders are drawing up a list of alternatives that includes a plan to access Azeri gas.

“In the 25 years since the fall of Communism we haven’t diversified the gas and oil routes,” Hungarian Prime Minister Viktor Orban said after the meeting in Bratislava, Slovakia. “This is a huge strategic mistake, not only for Hungary but for the entire EU.”

Russia’s annexation of Crimea and its alleged support for armed separatists in eastern Ukraine soured relations with Europe and intensified opposition to the OAO Gazprom-led South Stream pipeline. With no end to the conflict in sight, the focus is shifting to the Southern Corridor, a series of pipelines that would carry Azeri gas to Europe.

A project led by BP Plc beat out the OMV AG-led Nabucco pipeline after both had vied for the same Azeri gas source. The 3,500-kilometer (2,175-mile) route from the Shah Deniz field would have initial capacity of 10 billion cubic meters a year, just one-sixth of South Stream’s capacity.

BP and its partners Statoil ASA, Total SA and the State Oil Co. of Azerbaijan plan to start delivery in 2016. The fuel would flow to the Turkish-EU border and from there through Greece to Albania and Italy.

“The Southern Corridor looks most promising, especially after planned projects like Nabucco and South Stream have not panned out,” said Agnia Grigas, a senior fellow at the McKinnon Center for Global Affairs at Occidental College in Los Angeles.

The project is “realistic and can be executed in the medium term,” the Hungarian Foreign Ministry said after a meeting with negotiators from Greece, Bulgaria and Romania in Athens on Dec. 1.

Eastern Europe is now looking to link its network to facilitate the flow of gas through the region. Bulgaria’s link with Romania will be operational by the first half of next year, according to Bulgaria’s Energy Ministry. The country plans to accelerate building a pipeline linking its grid with Greece, Prime Minister Boyko Borisov said last month. Bulgaria and Serbia also plan inter-connections.

Bulgaria and Romania intend to increase exploration in the Black Sea, while Israel is working to convince the EU to back a pipeline to deliver gas via Cyprus. Europe is studying plans for 24 liquefied natural gas terminals with more than 140 billion cubic meters of combined capacity, Moody’s Investors Service said in a report Dec. 8.

Slovakia is backing a proposal for a 570-kilometer pipeline to connect the Balkans and the Baltics, Slovak Prime Minister Robert Fico said on Dec. 2. The project may cost as little as 750 million euros and carry as much as 20 billion cubic meters annually, according to operator Eustream AS.

The biggest problem remains finding volume sufficient to replace South Stream, which would have delivered 63 billion cubic meters of gas annually.

On Tuesday the commission met eight member states who took part in South Stream on the margins of a meeting to discuss the bloc’s energy plans for the next decade. Bulgaria sent a delegation to Brussels to convince the EC to continue talks with Russia to save the project, Borisov said on Dec. 8.

Hungary’s Orban, who defied the EU last month by backing a law to allow its construction, called on commission President Jean-Claude Juncker to include investment in a north-south gas link in plans to boost economic growth for the region.

The EU executive, in its objections to South Stream, cited laws on public procurement as well as “unbundling,” which prevents a gas provider from also controlling the pipeline. The obstacles “are not insurmountable,” Juncker said on Dec. 4.

“I don’t believe South Stream is dead, it just may not be built the way it was planned” said Andreas Goldthau, a researcher at Harvard University’s Belfer Center for Science and International Affairs. “It may still wind up transporting Russian gas to Europe through a country other than Ukraine.”

[Bloomberg]