Energy for Europe delivered securely. That was the idea behind the South Stream pipeline funded by Russia’s state gas giant Gazprom.
The decision to abandon the project, announced on Monday by Russian President Vladimir Putin, was described by one EU source as “a lose-lose for everybody.”
The project had begun in Bulgaria in October 2013 but was suspended in June after the European Commission said it broke EU competition rules.
The 930 kilometre pipeline was to have run under the Black Sea to southern and central Europe, avoiding Ukraine, another transit route for Gazprom.
The Kremlin has blamed EU obstructions for the move to halt the project.
Spiralling costs also hit construction. The budget soared by an estimated 47 percent and the total cost had been expected to hit 32 billion euros.
As it avoided Ukraine, South Stream was seen as an insurance policy by Bulgaria, Hungary and Serbia, whose Prime Minister Aleksandar Vucic was quoted as saying on state television, “We are paying the price of a conflict between big powers.”
What now is in the EU action tray after the Kremlin’s move?
According to Federica Mogherini, High Representative of the European Union for Foreign Affairs: “The decision that was taken, announced by Russia yesterday, tells us that it is urgent not only and not so much to diversify the routes, but also the sources of energy for the European Union.”
The pipeline also fell victim to a stalling European demand for gas and plunging energy prices.
One Czech official said: “The decision shows that the outside world does have an impact on Russia.”
It has also impacted on the market, with shares in German steel pipe maker Salzgitter and Italian oil services group Saipem sliding.
We talked to analyst András Deák, from the Institute of World Economics in Budapest, about other expected changes.
Gabor Kovács asked: “Who are the winners and losers after Russia’s shock cancellation of the South Stream project and how will this affect energy dependency?”
András Deák: “Well, it’s obvious that if an eventual new project took a route that was different from that of South stream then Turkey could be an absolute winner. It would have more gas in transit across it. Russia is apparently swapping Ukrainian transit dependency for Turkish. This enhances Ankara’s bargaining power.
“In a certain sense the European Commission could bring its prestige to bear, to make Russia back down in this conflict. Obviously, both sides would have done better to compromise — the Commission accommodating the legal procedure that Russia insisted on. But there was no compromise.
“The losers are clearly the central and eastern European countries — the transit countries where the pipeline would have passed. Until the end of this decade they are only going to have the Ukrainian pipeline. Things just got worse for them, because these countries need energy diversification to move slowly. They either need European gas ties with Russia to stay the same or to change slowly.”
Gabor Kovács, euronews: “For the last couple of years Hungary has been one of the project’s biggest supporters. Why is that, and is the cancellation of South Stream a political and economic blow for Hungary?”
Deák: “Well, it’s true that Russian-Hungarian economic cooperation has developed
spectacularly this year. A nuclear deal was signed in January. Over the summer Hungary closed off gas supplies Europe was sending through it to Ukraine, and in the last couple of months Hungary has been supporting South Stream ferociously.
“Clearly there was an economic reason and profit behind this, something that the Russians offered the government, but that’s something we don’t see. Here’s the question: is it always worth it to side with the Russians — to be more Catholic than the Pope, so to speak, more Russian that Moscow — or will that just bring more isolation?”