South Stream

State-controlled energy giant Gazprom is planning, along with western partners, two huge gas pipeline projects whose stated goals are to secure Europe's energy supplies but which critics say will increase the EU's dependence on Russia.

The first, Nord Stream, will bring Russian gas over the Baltic Sea directly to Germany, where it will then be distributed to other countries such as the Netherlands and Great Britain, whose own North Sea gas reserves are running dry. The 1,220-kilometer pipeline will deliver its first gas supplies to German clients in November.

The other pipeline, called South Stream, will also transport natural gas from Russia, but will run under the Black Sea to Bulgaria where it will split into two branches. One will supply Greece and Italy while the other will run to Romania, Serbia, Hungary, Slovenia and Austria. It is not expected to start pumping gas until 2015 at the earliest.

Together, advocates say, both pipelines will play an important role in ensuring the security and reliability of Europe's energy supply.

But some in the European Union sees the situation somewhat differently, worrying that the two pipeline projects will widen the bloc's dependence on Russia for its natural gas supplies. Right now, Russia provides the EU with about one-quarter of its gas.

Much of the early criticism of the Nord Stream project has faded and even some of its biggest critics, such as Poland, have come around.

"Nord Stream has long since become part of Europe's infrastructure," said Günther Oettinger, the EU's energy commissioner.

But many are still suspicious of the South Stream project, considering it an attempt by Moscow to torpedo Europe's own plans for a separate southern pipeline corridor that would bring gas directly from the Caspian Sea region.

Bypassing Russia

That pipeline, called Nabucco, is meant to diversify the EU's pool of supplier countries. Still in the project phase, it would deliver gas from the Caucasus and Middle East to a hub in Austria via Turkey, Bulgaria and Romania.

Experts believe that some of the world's largest supplies of natural gas are located in the Caspian Sea region, particularly in Azerbaijan and Turkmenistan. Brussels is eager to gain access to these reserves.

But if the Nabucco project stalls over costs or due to a lack of support from gas-producing countries, Oettinger worries that Moscow could have a complete monopoly on Caspian Sea gas.

"The Russians are an important partner for gas from their own production facilities," he said. "But I wouldn't welcome them as a trading partner when it comes to gas from Turkmenistan and Azerbaijan."

For its part, Russia recently called on the European Union to stop talks on the proposed Caspian Sea pipeline. The country characterized the bloc's involvement in the project that would bypass Russia as "meddling" that claimed it could add to tensions in the region.

Russia and the states around the Caspian - Iran, Kazakhstan, Azerbaijan and Turkmenistan -- have been locked in sensitive talks over dividing the sea's huge hydrocarbon reserves.

Western involvement

The final strategic decision whether the Nabucco project goes ahead or not will come at the end of this year. However, South Stream is moving somewhat more quickly and on Friday, the final shareholder agreement is set to be signed at a meeting in the Black Sea resort town of Sochi.

Gazprom will have a 50 percent stake in the project while Italy's ENI, one of the project's initiators, will get 20 percent. Electricite de France (EDF) and Germany's Wintershall, a wholly owned subsidiary of BASF, will each have 15 percent.

BASF has long done business with Gazprom and has been involved in the Nord Stream project since 2005. However, the company had held back from involvement with South Steam, and as late as last fall, the word out of the Wintershall headquarters in Kassel was that no participation in the southern pipeline was planned.

But that led Gerhard Schröder, former German chancellor and now chairman of Nord Stream AG, to get involved.

In a speech celebrating 20 years of partnership between BASF and Gazprom in Berlin last November, Schröder questioned whether a company as important as BASF/Wintershall - in efforts to secure gas supplies - should reconsider its participation in the other pipeline that one that has gas. And by that I mean South Stream."

It was a clear swipe at the Nabucco project, which still has no binding gas delivery contracts with countries around the Caspian Sea.

Different animals?

While the words from the former chancellor likely came in loud and clear to BASF executives, it was also a joint venture agreed upon by Gazprom and Wintershall to boost natural gas production in Siberia that convinced the Kassel-based concern to sign onto the South Stream project.

"South Stream puts us in the position to significantly increase our volume in southeast Europe," said Wintershall's chairman Rainer Seele, who has long done business in Russia.

When asked whether he had sidestepped the political component of the project, Seele said South Stream and Nabucco should not be seen in the same context since their aims were completely different.

"South Stream's priority is to establish new, secure transit routes in order to supply southeast Europe," he said, referring to the detour the project makes around Ukraine.

The transit of Russian gas through the former Soviet republic has long been problematic and tensions between the two countries have resulted in interruptions of European gas supplies. Right now, Moscow and Kyiv are involved in a new dispute over gas pricing just as the winter season is approaching.

Seele said the Nabucco project, on the other hand, primarily concerns securing new natural gas sources for Europe.

"The two pipelines are not in competition with one another," he said.

Author: Andrey Gurkov (jam)
Editor: John Blau