www.oxfordenergy.org | January 2015
By Jonathan Stern, Simon Pirani, Katja Yafimava |
Introduction In 2006, Gazprom and the Italian company ENI announced a joint venture to build the South Stream pipeline system across the Black Sea, and signed a memorandum of understanding the following year.1 Subsequently, EdF and Wintershall joined this technically challenging project – four pipelines, each 930 km in length to be laid from Anapa on the Russian Black Sea coast to Varna in Bulgaria in water depths of up to 2,250 metres. Originally the project was planned to be two lines with a capacity of 31 Bcm/year but, following the January 2009 Russia-Ukraine crisis, this was then expanded to four lines and 63 Bcm/year. The plan was to flow gas through the first pipeline in the 4th quarter of 2015, with full capacity of the first two lines to be reached by the end of 2017 and four lines by 2020. Tenders were issued, and when the project was cancelled in early December 2014, the pipe for the first string of the offshore line and the laybarge were already on site in Varna and were within days of starting to lay the offshore section.2 By then, work on the eastern and western strings of Russia’s “Southern Corridor” onshore pipeline3 bringing gas to Anapa had also started, as well as work on the Russkaya compressor station which would move gas through the offshore lines.4
From 2008-10, Russia signed intergovernmental agreements with seven European countries for the onshore section(s). 5 The routes of the two onshore pipelines changed over time as the project encountered increasing national and EU regulatory challenges.6 The total cost of South Stream (for the full 63 Bcm/year of capacity) was estimated at around $40 billion in mid-2014, comprising: $17 billion for the Russian Southern corridor; $14 billion for the offshore section and $9.5 billion for the onshore European sections.7
South Stream was by far the largest ongoing European gas infrastructure project. Its cancellation and potential replacement with pipelines across the Black Sea to Turkey, is an event of significant importance for the European gas industry. It has repercussions for future flows of Russian gas across Europe and the Russian-Ukrainian gas relationship. But more importantly, when combined with other developments such as Gazprom’s cancellation of its Wingas joint venture purchase8 and abandonment of efforts to obtain 100% of capacity in the OPAL (Nord Stream onshore) pipeline9 , and the possibility that a second major pipeline export contract may be signed with the Chinese company CNPC in 2015, it may have signalled a sea-change in Russian gas export policy.