12/02/2014, 00.00
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Too many "obstacles" push Moscow to axe South Stream

by Nina Achmatova
Putin scraps US$ 45 billion pipeline project to bring Russian gas to Europe bypassing Ukraine. In its place, he announces a new energy partnership with Ankara, and a new pipeline to the Greek-Turkish border, but for some experts, it is just a "bluff".

Moscow (AsiaNews) - After eight years of negotiations and almost US$ 10 billion, Russia has decided to pull the plug on one of the most ambitious and expensive projects in its history, namely Gazprom's South Stream gas pipeline, which would have brought Russian gas to Europe (Greece, Bulgaria, Serbia, Hungary, Austria and Italy), bypassing Ukraine.

"We think that the European Commission's position was not constructive," Mr. Putin said on Monday during a press conference with Turkish President Recep Tayyp Erdogan. In view of the situation, Russia will diversify its gas supplies and focus on Turkey, after China, as it seeks a broader range of alternative partners to Europe.

Russia will concentrate in fact on supplying gas to Turkey through the Blue Stream pipeline, increasing deliveries by 3 billion cubic metres a year and offering a 6 per cent discount as of 1 January as a gift to Turkey for not joining EU's sanctions against Russia.

The Russian leader also said that Russia planned a new pipeline until Turkish-Greek border for consumers in southern Europe, cutting off Central Europe.

The decision is "a classic case of bartering energy access for political and economic cooperation," said Chris Weafer, a partner at Moscow-based consultancy Macro Advisory, cited in Bloomberg. "Putin is obviously hoping that an expanded relationship with Turkey will go some way to compensate for the more difficult trade relations with the EU."

However, Russia's decision to scrap South Stream means that the pipelines through Ukraine will remain vital for the energy supply to Europe, giving Kyiv some leverage against the Kremlin.

In order to insure diversified sources, the European Union discouraged the big pipeline because it would enhance dependence on Russia and violate EU anti-trust law. For this reason, it called on member states to stop building parts of the pipeline.

For Moscow, Bulgaria's decision against the pipeline on its territory was the straw that broke the camel's back.  "We couldn't get necessary permissions from Bulgaria, so we cannot continue with the project. We can't make all the investment just to be stopped at the Bulgarian border," Mr. Putin said.

Gazprom's partners in the offshore section of the pipeline (estimated price tag: US$ 14 billion) were Eni SpA (ENI), Electricité de France SA (EDF), and Wintershall AG.

Financing construction also faced obstacles because of Western sanctions that gave European banks cause to reconsider loans to Russian companies.

Gazprom's boss, Alexei Miller, said the Russian giant planned to build a new pipeline capable of shipping 63 billion cubic metres a year from Russia to Turkey to replace the Ukraine route. Of those, 14 billion cubic metres would go to Turkey.

The pipeline will bring 50 billion cubic metres of natural gas to an energy hub to be built on the Turkey-Greece border, Miller said. In view of this, Gazprom will create a new legal entity in Russia for the pipeline in Turkey.

For many analysts, there will be no new pipeline to Europe. Ending the project may also save Gazprom from unnecessary spending because there is already sufficient delivery capacity to Europe, said Mikhail Korchemkin, a former analyst for the Soviet Union's Gas Ministry. Instead, Russia will concentrate on supplying gas to Turkey through the Blue Stream pipeline.

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