In a move that may give fresh momentum to South Stream, Russian gas monopoly Gazprom on May 15 signed agreements with transit states Bulgaria, Greece, Serbia and Italy to construct the Gazprom-backed natural gas pipeline to Europe. The agreements were appropriately signed in the Russian resort of Sochi since the pipeline will run through the nearby Black Sea.

The agreements with the Bulgarian Energy Holding, Greece’s Desfa and Serbia’s Srbijagas outline pre-investment cooperation and requirements for joint ventures to design, build and maintain the pipeline in their territories. In an additional important agreement, Gazprom and Italy’s ENI agreed to increase South Stream’s annual capacity to 63 billion cubic metres from 31 billion cubic metres.

Gazprom CEO Alexei Miller said South Stream would cost an estimated 8.6 billion Euro, and the pipeline launch date had been set for December 31, 2015, although the partners would try to complete the project earlier if possible. Russian Prime Minister Vladimir Putin and his Italian counterpart Silvio Berlusconi oversaw the signing of the agreements.

Gazprom and ENI have already set up a joint venture to build the pipeline that will run through the Black Sea to Bulgaria on to Greece, Serbia, Hungary and Italy. Russia enjoys favourable relations with Italy and “hopes for similar relations with all EU countries,” Putin told reporters in Sochi after talks with Berlusconi.

Commenting on the agreements on May 15, Putin said they “contributed to Europe’s energy security.” For his part, Berlusconi told reporters: “Under the circumstances, a major step toward boosting energy security was made.” Berlusconi said he believed that the EU needs Russia as much as Russia needs the EU and promised to do his best for better EU-Russia relations.The agreements also underlined Russia’s determination to create new export routes for its gas that bypass Ukraine, following a string of disputes that have led to disruptions in Russian gas flows to Europe. Around 80 percent of the natural gas Russia now delivers to Europe goes via Ukraine.

DITCHING UKRAINE

In a bid to avoid future disputes, Russia has sought in vain to gain control of Ukraine’s natural gas network. Moscow reacted furiously to an agreement signed between Brussels and Kiev in March that foresaw the EU investing millions of dollars in Ukraine’s gas network, saying that as sole gas supplier to Ukraine it should have been asked to participate in such an upgrade. Konstantin Simonov, the general director of the Russian National Energy Security Fund, told New Europe on May 12 in an interview on the sidelines of the Athens Summit 2009 on climate and energy security that “the reaction of Putin on this declaration which was signed on March 23 was very nervous. In my opinion for Russia it’s a very good document. If Europe really wants to invest in the Ukrainian pipeline system why not to give an opportunity to do it? We will save our money and is a very good idea.”

Simonov explained that there are only two possibilities to find gas supplies for the Ukrainian pipeline: Russian gas and gas from Central Asia through Russia. “That is why if the EU invests money and we will export our gas to Europe, for us it will be very good decision,” Simonov said, adding that now from a technical point of view the Ukrainian pipeline system is a serious risk. “So we must press on Europe to invest this money. But vice versa we say ‘No, no, no, we also want to invest money. Let’s talk about consortium.’”

Simonov also said that it would be a good idea if the EU’s socalled third legislative package, aimed at making it more difficult for Russian energy companies to invest into the European pipeline infrastructure, also applies to the territory of Ukraine. He said that Ukrainian national stock company Naftogaz, which is the proprietor of Ukraine’s pipelines, would then have to ensure Gazprom liberal access to Ukraine’s system. “In this case there will be no Naftogaz as this dealer of Russian gas,” he said, explaining that now Gazprom is selling gas to Naftogaz and then Naftogaz is reselling this gas to Gazprom. He said that Russia’s efforts to buy all these pipelines as well as tie up all the extra gas from the former Soviet republics are politically motivated. Solving the problem of transiting Russian and Central Asian gas through Ukraine is much cheaper and efficient than the construction of South Stream and Nabucco, Simonov said.

STRUGGLE FOR SUPPLIES

The general director of the Russian National Energy Security Fund noted that “the main problem is the very bad relations now between Russia and Europe. It’s the most stupid situation. I can’t understand this because without Russian gas Europe will not survive. Without the European market, Russia will not survive.”

In an effort to grab resources slated for the EU’s rival Nabucco gas pipeline, Gazprom said on May 15 that it is ready to buy all the gas from the second stage of an offshore Azeri development. “We’re ready to buy the whole volume of Shah Deniz II,” Bloomberg Television quoted Gazprom Deputy CEO Alexander Medvedev as saying. Gazprom’s network is the “optimal” route for gas from Azerbaijan to reach Europe, Medvedev said. Azeri state oil company SOCAR plans to meet Gazprom in May to negotiate a deal to begin selling gas to Russia beginning next year.

Nabucco is designed to bring gas from Central Asia, the Caspian and other sources to Europe bypassing Russia. South Stream transit country Bulgaria is also planning to host Nabucco. In April, Bulgaria, affected by Russia’s cutting off gas supplies to and via Ukraine in January, hosted a gas summit of major producers and European consumers to promote Nabucco. Sources of gas supplies remain a problem for the project.

Simonov hailed the cooperation between Russia, Bulgaria, Serbia and Greece. “This cooperation is very good for these countries. It’s not the monopoly of Russia or pressure of Russia, but for such countries as Bulgaria it’s not the political question. They want to earn more money and that is why I don’t think now that Bulgaria is our satellite or our big political supporter in Europe,” Simonov told New Europe, citing as an example Hungary, which has agreed to join both South Stream and Nabucco.