Recent implications in the South Stream project: EU’s quest for energy security or political motivation against Russia?

by Elpida Theodoridou. Originally published on 2014/02/04

The South Stream project has proven to be quite a controversial issue in recent days. The future of the planned pipeline network that will deliver Russian gas to South and Central Europe through the Caspian Sea seems very fragile. But what caused this sudden change in plans? And moreover, what implications arise from such developments?

On the 4th of December 2013, Klaus-Dieter Borchardt, the director for energy markets of the European Commission announced that all of the bilateral agreements signed between Russia and Bulgaria, Greece, Croatia, Hungary, Slovenia, Austria and Serbia regarding the South Stream project, constitute a breach of European Law. The South Stream Offshore Gas Pipeline project is designed to deliver gas from Russia to Bulgaria through the Black Sea and then through a network of pipelines, the gas will be distributed to south and central Europe. The main justification for the EU’s decision to block the development of the project, lays in the fact that Gazprom (the Russian energy giant which is the main player behind this project) cannot be a producer and a supplier of gas as non-discriminatory participation of third parties has to be ensured. Additionally, the commission considers it necessary to establishment an independent and objective management committee for the pipeline tariffs. According to the Internet portal EurActiv, Borchardt stated that the countries need to renegotiate the agreements with Russia in order to make it comply with the EU Law, an option that seems highly unlikely as Russia has already declared that the continuation of the construction of the pipelines will take place, justifying this under the provisions of the International and Local Law (EurActive, 2013).

Is that all there is?

Does this energy conflict have its roots in even deeper ground? What is understandable (and also projected as the main line of defence for the EU) is that this pursuit of diversifying energy imports is of vital interest to the EU. The dependency on one or only few energy exporters leaves little room for decisions while it also affects EU’s energy security. High energy dependence on Russia provides the country with a diplomatic leverage which can be used at any time, bringing the EU in a difficult position and with only a few alternatives. Since these bilateral agreements do not promote free access and competition in the energy market, and since these agreements only lead to the further increase of Gazprom profits, the EU decided to block them.

However, despite the fact that the European side chose to hinder the development of the project, there are rising sceptical voices contesting the grounds on which the European arguments have been based on. According to interviews given to Deutsche Welle (Germany’s international broadcaster), the timing chosen by the EU to take action seems highly suspicious and questionable. It appears quite strange that the EU did not have any insight in these agreements up until recently even though the construction of the pipeline started in late 2012. Additionally, even though the Union is demanding free access of the pipeline network to third parties, it is up to Gazprom, the Open Joint Stock Company which is greatly managed by the Russian state. Gazprom which is the leading player of this project should not be obliged to share the capacity of the pipeline with other gas providers (Deutsche Welle, 2013). For reasons like the ones mentioned above, the opposing side argues that there are greater interests hidden behind the decision of the EU to enforce such obstacles to the development of the operations. It is a fact that Europe does not wish to depend upon one or only few energy importers. The fact that Russia has recently turned off the gas supply to Ukraine may be another reason behind the EU’s scepticism. . By constructing a new pipeline which will still have the same supplier, Europe has every reason to worry about the intentions of Russia, as it seems that they have a plan to encircle Europe in terms of energy exports which would leave the EU with few alternatives. The geopolitical power games that are being played on the energy field are tough and conflictive and although no strong confrontation has taken place, it appears that the relations between the relevant actors are becoming more and more strained as each one is trying to preserve its own vital interests.

Antithetic reactions

So far, the reactions have been antithetic. Despite the fact that the EU has chosen this severe decision, Gunther Oettinger, the European Energy Commissioner is anticipated to visit Moscow during January in order to discuss and negotiate with Russia on behalf of the member states, a mandate given by the member states themselves (Voice of Russia, 2013). However, the other side does not share the same view. For Gazprom, the South Stream does not seem to breach any law. As the company has stated, the EU reacted to these deals too late and they have already declared that the pipeline will continue to be built. According to Gazprom, the construction of the pipeline is in full compliance with the local and international laws and there is therefore, no legitimate reason to hinder its development (European Voice, 2013). What remains to be seen is how the two sides will choose to solve this dilemma. Will Europe decide to take a step back or will Russia and Gazprom compromise and allow other players to join this energy game? The answer to this question cannot be speculated as none of the two sides wish to give way to their counterpart. The only certain aspect to this conflict is that we will hear a lot about the South Stream developments in the upcoming months.