By Gabriele Steinhauser in Brussels, Sean Carney in Prague and Emre Peker in Istanbul
BRUSSELS--The European Union sought Tuesday to deflect
responsibility for Russia's plan to abandon an ambitious gas
pipeline to Europe, while some politicians and analysts questioned
whether the project was truly dead.
Russian President Vladimir Putin's announcement that he would
drop the South Stream pipeline and instead build an alternative one
through Turkey came as a surprise and puts the bloc in a
complicated spot.
Brussels is working to reduce its reliance on Russian energy
amid the standoff in Ukraine. But until alternative suppliers have
been found, EU countries, particularly in the southeast, remain
vulnerable to any cutoff in shipments via Ukraine, which South
Stream would have bypassed.
The pipeline, whose construction Mr. Putin launched with much
fanfare in late 2012, was planned to ship Russian gas to countries
such as Bulgaria and Hungary that have been hurt by previous
disruptions of supplies.
But the $20-billion project ran into trouble earlier this year
when the European Commission, the EU's executive, said Russia's OAO
Gazprom, as 50% owner of the pipeline couldn't control its entire
capacity as well. Then when Russia launched a challenge to EU
competition and energy market rules at the World Trade Organization
in April, the commission halted all talks with Moscow on the
project.
At a news conference Monday night in Ankara, Mr. Putin blamed EU
provisions for the decision to drop the project. But officials in
Brussels said the bloc wasn't at fault for the project's
issues.
"Gas pipelines in Europe must be built and operated in line with
EU legislation," said Anna-Kaisa Itkonen, the commission's
spokeswoman for energy matters. She said a previously scheduled
meeting with the energy ministers involved in South Stream would
take place next week to discuss how the project could be workable
under EU law.
The announcement comes as Russia is striking deals to strengthen
ties with countries that haven't joined EU and U.S. sanctions over
the Kremlin's actions in Ukraine. Foreign Ministry spokesman
Alexander Lukashevich said Tuesday that Russia was intending to
deliver its gas to other regions.
"Those who 'buried' this project should calculate the
consequences," he told reporters.
The decision was an embarrassment for Mr. Putin because of its
status as a signature project and his inability to push it forward
over EU objections, said Jonathan Stern, senior research fellow at
The Oxford Institute for Energy Studies.
Mr. Stern said the EU's reluctance combined with Moscow's
worsening financial situation amid sanctions and a falling oil
price had likely convinced Mr. Putin to cut his losses. "The sense
was that relations with the EU are terrible and not getting any
better," he said.
But officials in countries that had backed the project
questioned whether Russia's decision was final or just a political
ploy to gain more favorable terms.
"This is a tactical step from Russia; this is not a final
decision. This is a tool for pressure on Bulgaria," Martin
Dimitrov, the deputy chairman of the energy committee in Bulgaria's
parliament, told Bulgarian Radio.
Serbia's government, a 50% stakeholder in the Serbian section of
South Stream, said it was waiting for official clarification from
Russia over whether the project has been frozen or canceled.
At least one of Russia's European partners in the South Stream
project also appeared taken aback by Mr. Putin's announcement.
Saipem SpA, a unit of Italian energy company Eni SpA that has a
EUR2-billion ($2.5 billion) contract to install the first sub-sea
line for South Stream, said Tuesday it hadn't been contacted about
plans to terminate the project and is continuing to carry out its
work. A Saipem ship in charge of laying the gas pipes left Bulgaria
on Monday to reach the Russian Black Sea coast.
Analysts at Bernstein Research also said Mr. Putin's
announcement appeared to be political positioning, arguing that
significant resources have already been invested.
"Hence purely from a project economic stand point it would not
be an easy decision to make," they said in a note. "We think it is
possible that the decision may be reversed."
Turkish Energy Minister Taner Yildiz said Tuesday that Russian
and Turkish agencies are now working toward a final deal to build a
pipeline between the two countries, a link that could herald
Turkey's emergence as a transit route and natural-gas hub. But he
said it was too soon "to pronounce the final word on these matters
today."
Others voiced doubts that the alternative route through Turkey
would turn out to be more viable than South Stream, in part because
even if the proposed new link via Turkey to Greece goes ahead,
Gazprom won't be free of negotiations with a transit country, which
it had hoped to avoid by bypassing Ukraine.
"When you go through the history of announced pipelines you have
many, many casualties," said Christian Egenhofer, a senior fellow
at Brussels-based think tank Centre for European Policy Studies. "I
wouldn't take this too seriously."
Hasan Ozertem, an energy analyst at the International Strategic
Research Organization in Ankara, cautioned that the ruble selloff
and capital flight from Russia will make it more difficult to
finance a project that will cost tens of billions of dollars,
especially since the Turkey route is poised to be less lucrative
than South Stream.
"The observation that Turkey is the alternative to the South
Stream is very ambitious; we must wait a bit longer," he said.
Europe also has other options, such as the Southern Gas Corridor
project that would bring central Asian and Middle Eastern gas to
Europe through Turkey and Greece, although they are years from
coming online too.
Slovak pipeline operator Eustream is also launching talks with
various potential partners to connect Ukraine, Romania and Bulgaria
with Turkey and the former Yugoslav states in a unified
network.
Eric Sylvers
and James Marson contributed to this article.
Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com,
Sean Carney at sean.carney@wsj.com and Emre Peker at
emre.peker@wsj.com
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