Pipeliners

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - Gazprom is continuing to offer new pipeline routes to its customers in the European Union. Late in June, the Russian gas monopoly and Italy's Eni made a preliminary agreement to lay the South Stream pipeline under the Black Sea, and on across Bulgaria and Greece to the Apennines in Italy. The Russian mammoth will not necessarily make a lot of money on the project. Geopolitical rather than economic factors are the chief motivation. Now that it is interested in entering southern Europe, Gazprom has chosen to work with the Greeks and Bulgarians, who have been culturally close to Russia for centuries, and Eni, its long-standing partner. The new project calls into question Turkish plans for transporting gas under the Caspian Sea to Europe. Eni and Gazprom representatives met in Rome on June 23 to sign an agreement on the ambitious South Stream project, estimated at 10 billion euros. The pipeline will run from the Russian Black Sea coast underwater to the Bulgarian shore, on across Bulgarian and Greek dry land (the route will probably lie parallel to the Burgas-Alexandropoulos oil pipeline, which Russia is involved in building) and under the Adriatic to Italy's south coast. The South Stream may eventually have branches from Bulgaria to Slovenia and Austria-and possibly additional offshoots to Italy. At the Balkan energy summit in Zagreb, Croatia, the day after the memo was signed, President Vladimir Putin stressed that the South Stream was meant to help Europe meet its consumers' demand for gas. True, if the project is implemented, it will give the European Union greater confidence in gas supplies from Russia. The South Stream is the result of Gazprom's policy of the last two years. The company's goal has been to bypass Ukraine, Belarus and Poland in supplying gas to Western Europe. Gazprom recently made a spectacular about-face: it previously charged Ukraine and Belarus far less than Western European countries, but also paid only token fees for gas transit. The arrangement failed time and again because each party preferred getting hard cash to swapping discounts. Ukraine and Belarus raised transit fees as soon as Gazprom increased gas prices. There were heated disputes with Ukraine in the winter of 2005/06 and with Belarus the next winter-it is Gazprom's custom to announce price rises a few days before the new year, when it renews contracts. Western Europeans watched with bated breath-arguments with neighbors made Gazprom cut supplies, so Italy and Germany were not getting the amount of gas agreed in their contract. Meanwhile, Gazprom was hatching plans for new Western-bound pipelines to bypass Ukraine and Belarus. First came blueprints for the North European Gas Pipeline (NEGP), which would run under the Baltic from the coast of Russia to Germany. The NEGP did not need any transit countries. There was only one problem - bypassing Estonian territorial waters. Unlike the NEGP, the South Stream cannot avoid land transit. But then, Gazprom hopes-with good reason-that Bulgaria and Greece will welcome the chance to open Europe's southern gates to Russian gas, especially considering all the foreign investment that is almost certain to pour in. Still, Gazprom will have to untie its purse strings for its new transit countries, to say nothing of the South Stream's exorbitant construction costs. So the project's feasibility is doubtful, because there is a way to increase Russian gas supplies to Italy and the Balkans at a much lower cost-by extending available routes and increasing their capacity. There is the Soyuz, the largest of the functioning Russia-Western Europe gas pipelines, and the Blue Stream, which runs under the Black Sea from Russia to Turkey, and a branch could be built to Europe relatively cheaply. European Union countries, meanwhile, are wary after all they have been through because of Russian gas disputes with Ukraine and Belarus. So they welcome projects like the NEGP and the South Stream-they will have a far greater chance of securing full and uninterrupted deliveries thanks to new routes and suppliers. That is the belief of the European Commission, in any case. To Russia, the geopolitical factors matter most. Disappointed with Ukraine and Belarus, whom it considers ungrateful neighbors, it wants closer ties with Greece and Bulgaria, its Balkan allies for centuries. There is also the Gazprom-Eni strategic partnership to think about. The Italian concern stands much to gain from its relationship with Gazprom, especially after it lucratively subcontracted the Blue Stream effort. Gazprom has scanty experience with underwater pipeline construction, so Eni is certain to do the lion's share of the South Stream job, which the Russian partner will generously pay for. Turkey is the underdog of the affair. Its plans to join hands with Gazprom on the Blue Stream branch to Europe have certainly been put off indefinitely, if not buried altogether. The South Stream also casts doubt on the Nabucco pipeline project, which is intended to transport Caspian gas to Europe via Turkey. The South Stream, however, is still in its embryonic stage. Feasibility studies alone will take a year and a half. Experts have not ruled out that the project will be found unprofitable. Then, we must not forget the close competition involving not only operating but also planned pipelines in worldwide oil and gas geopolitics. The South Stream idea might have been proposed merely to dampen some of the excitement surrounding the Nabucco.