Interview: EU to stay dependent on Russian gas transit states

Energy Trade

The European Union will continue to depend on ex-Soviet transit states for the delivery of Russian gas even after the opening of two planned pipelines to bypass such routes, a Moscow-based EU official said.

Torsten Woellert, EU policy officer for energy in Russia, said capacity limits and uncertain planning would restrict impact of the major Nord Stream and South Stream pipelines that are viewed in some EU states as a godsend for energy security. “Neither of them will stop Russia and Europe’s reliance on transit countries such as Ukraine and Belarus for Russian gas,” Woellert told Reuters in an interview. “Look at the numbers: Nord Stream’s first strand has 27 billion cubic metres (bcm) a year, South Stream has 30 bcm and is only a plan.” Europe receives around 120 bcm of gas a year from Russia via Ukraine, through Soviet-era links. Another 30 bcm comes through Belarus. A second strand will double Nord Stream’s capacity to 55 bcm, but both it and South Stream, if they reach planned capacity, would only be able to transport a total 85 bcm per year.

Russian gas export monopoly Gazprom, which supplies Europe with a quarter of its gas needs and will part-operate the two links, has long sought alternative routes to avoid current transit states. Pricing spats with its neighbours have caused disruptions in the flow of gas supplies in the past. Russia and Ukraine said this month they will remove all middlemen in their gas trade, ending years of opaque schemes that caused political tensions. But sensitive issues remain between the neighbours over pricing and supply. In February, Hungary became the third country to join the €10 billion ($15.59 billion) South Stream pipeline, which will be jointly built by Gazprom and Italy’s Eni. In January, Russia agreed to route the South Stream through Bulgaria and Serbia, marking major victories in a ‘pipeline war’ with the European Union.

Analysts say the South Stream project will pose a challenge to the rival US - and EU-backed Nabucco pipeline scheme, which would take gas from ex-Soviet Azerbaijan to southern Europe. Under the South Stream scheme, Russian gas will go from the Novorossiisk port, travel 900 km (560 miles) under the Black Sea, re-emerge on the Bulgarian coast and then continue through one of two onshore routes. While Nord Stream, which will take Russian gas under the Baltic Sea to Germany and then on to northern Europe, is expected to have its first link come on stream in 2011, its southern counterpart does not have a time frame. “For Nord Stream, they have done feasibility studies and environmental impact assessments. While the project has not yet received all approvals and the time schedule may slip, at least everyone has done their own work,” Woellert said. “But for South Stream, none of this has been done so far. Anything can happen.” Nord Stream is majority owned by Gazprom and Germany’s BASF and E.ON have minority stakes. It is estimated to cost at least €5 billion ($6.74 billion), although operators have said it could exceed this amount.


Woellert said practical negotiations on a new pact between the EU and Russia should begin in the second half of this year. Strategic partnership negotiations between Brussels and Moscow were blocked last year over a Russian ban on Polish food imports, which was mostly lifted in January. The wide-ranging EU-Russia agreement will include trade, energy and human rights issues. The timing of its finalisation is unknown. European businesses in Russia, such as oil majors Eni, Total, BP and others, will profit from a sound legal framework, which the agreement would provide, Woellert said. “Essentially these companies are making business and should not be expected to make energy policy. This should be left up to policy makers,” he said. (Reuters)

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