Greece seals pipeline agreement with Russia

Russian President Vladimir Putin is ending his term by sealing a deal on the South Stream gas pipeline, a project perceived as a rival to the EU's flagship Nabucco pipeline aimed at decreasing Europe's dependency on Russian gas.

EU dependency on Russian gas imports is currently at 40% and is expected to rise considerably in the coming decades unless supply sources are diversified and/or greater emphasis is placed on locally generated renewable sources of energy.

The EU and Russia began an 'Energy Dialogue' in 2000 in order to formalise their energy relations. But relations between the two sides have been marred by difficulties, with European firms complaining about restricted access to key energy resources and investments in Russia (EurActiv 06/02/07).

These concerns led the Commission to insert a reciprocity clause into its energy market proposals in a move aimed at protecting EU energy infrastructure from control by third countries. The clause - dubbed the "Gazprom clause" in Brussels – would oblige foreign firms to 'unbundle' their production and transmission activities before they are allowed to obtain a controlling stake in European energy companies (EurActiv 20/09/07).

Greek Prime Minister Kostas Karamanlis signed an agreement with Moscow on Tuesday (29 April) to start construction on the South Stream pipeline, pouring cold water on the rival Nabucco project championed by the EU.

South Stream was launched in 2007 by Italy's Eni and Russia's Gazprom. It is designed to pump 30 billion cubic metres of Russian gas a year to Europe, under the Black Sea via Bulgaria, Greece, Serbia and Croatia to Italy. Under the plans, one of its branches will go through Hungary, which recently joined the project, and reach Austria.

Speaking to reporters after the signing ceremony in Moscow, Russian President Vladimir Putin derided EU efforts on Nabucco. "Please, if someone can find some other similar project under economically acceptable terms that can guarantee products of a sufficient volume for these gas systems, we will only be glad," Putin said according to the Associated Press.

"Realising the South Stream project doesn't mean that we are fighting some other alternative project," he added.

Nabucco in the doldrums

By contrast, Nabucco would bring gas from the Middle East and Asia to Europe via Turkey, Bulgaria, Romania, Hungary and Austria. The project is geopolitically significant because it will bypass Russia, but the project, scheduled to be completed by 2013, has encountered financing problems and a lack of political will from some member states.

Russia attaches importance to the South Stream project, estimated to cost some €10 billion, because it bypasses Ukraine and would probably make Nabucco redundant. Moscow is also trying to pre-empt any plans to bring gas to Europe from Central Asia, bypassing Russia. Gazprom CEO Alexei Miller famously mocked the ambitions of the EU project, saying "Nabucco is an opera, not a pipeline".

Recently, Russian Ambassador to the EU Vladimir Chizhov dismissed the potential of the Nabucco project, especially the plans to bring gas from Turkmenistan or Azerbaijan, labelling the resources of the two Central Asian countries insufficient. The only way to fill the Nabucco pipeline is with Iranian gas, he said.

Russia reasserting ties with South Eastern Europe

Gazprom is also very close to finalising an energy agreement with Serbia, where a 400-kilometre section of the South Stream pipeline will be built. As part of the deal, Gazpromneft will acquire a 51% stake in Serbia's state-owned oil company, NIS, for €400 million.

This pipeline project and others seem to go hand in hand with Russia's ambition to reassert its ties with transit countries. Russian friendship with Greece and Serbia has historic roots. The relations with Belgrade developed greatly in opposition to the major Western players over Kosovo, and could blossom even further if a nationalist and anti-EU government takes over following the elections on 11 May. Russia's relations with EU members Hungary and Bulgaria have also perceptibly improved.

Senior EU statesman sought to head South Stream

Gazprom is also obviously looking for a senior EU statesman to head the South Stream project. Italy's outgoing prime minister, Romano Prodi, has declined Putin's offer, an Italian cabinet source recently disclosed. Such an appointment would mirror German Chancellor Gerhard Schroeder's appointment to Gazprom's Nord Stream pipeline. The position is obviously still open.

In an interview with the New America Media website, Michael T. Klare, director of the Five College programme in Peace and World Security Studies at Hampshire College, Amherst said: "Putin has turned Russia into an energy superpower by reasserting state control over Russia's energy assets. One thing that one has to bear in mind is the importance of natural gas in the world energy equation. In another decade, maybe two, oil will be supplanted by natural gas, and Russia has more natural gas than Saudi Arabia has oil. Gazprom, the state monopoly, is the world's largest owner of natural gas. Putin has absolutely and totally dominated the control of Gazprom."

In an editorial, the Financial Times said there is "no need to demonise Russia" following the South Stream deal. "Moscow is unlikely to use its dominance to cut off the EU. It depends on gas revenues even more than the union depends on its gas. But a stronger market position allows the Kremlin to seek higher prices and better terms — and to exert political influence, particularly in Eastern Europe where dependence on Russian gas is highest. The only effective EU response is a unified, multi-headed and flexible approach to energy security. It is perhaps the biggest contribution the Union could make to Europe's economic well-being."