have enabled such large exports. Despite the EU’s efforts
to decrease its energy dependency on Russia for strategic
considerations, the EU market is undoubtedly Russia’s largest
export destination and will remain so in the foreseeable future.
The absence of alternative suppliers to Russia, due to a variety
of reasons, has guaranteed Russia’s continued preeminent
role in the predictable future. These reasons include the EU’s
self-created restrictions for political reasons (imposing bans on
Iran having the world’s largest conventional gas reserves and
third largest conventional oil deposits), limited production and
export capacity (Azerbaijan), impracticality of exports for being
land-locked (Turkmenistan) and security challenges, instability
and questionable sustainable export reliability (Egypt, Libya,
Nigeria, Sudan and South Sudan). The launch of another major
EU-Russian pipeline (South Stream) in 2012, and its continuity
despite the EU’s worsening ties with Russia over Ukraine, is a
blatant illustration of this reality.
Although Russia’s supplying role to the EU is not in danger
thanks to the EU’s energy situation, Moscow has been looking
at Asia as its main energy market. Having the world’s largest
economy and a significantly growing population to make it
the world’s largest energy consumer, the continent, which
will maintain its mentioned rank in the foreseeable future, has
become the focus of Moscow’s attention. Compared to its large
share of the European energy market, Russia’s share of the Asian
market is small due to its recent shift of focus from Europe to
Asia. Yet, this decision was made way before the outbreak of
the ongoing conflict with Brussels over Ukraine, although the
resulting worsening ties have certainly strengthened the Russian
resolution to secure a lion share of the Asian energy market.
Nevertheless, Russia’s eastward shift will not be at the expense
of its European market, rather a complimentary move for as
long as the EU countries need Russian energy.
Russia’s piped exports to Asia have been limited to its oil
exports to China since 2011 via the Skovorodino-Daqing Oil
Pipeline (300 000 bpd), a branch of its East Siberia Pacific
Ocean Pipeline. The ESPO feeds sea tankers destined for Japan,
South Korea, Taiwan and China. Currently, Russia has no piped
gas exports to Asia, but this reality will soon change thanks
to the Sino-Russian gas deal of May 2014. This will certainly
expand Russia’s market share of Asia, but will not turn it into
the continent’s largest supplier. Consequently, Russia has other
piped gas projects in mind for its exports to India, Japan and
North and South Koreas. If they are realised, Russia will become
a major piped gas supplier to Asia. The following account sheds
light on the most significant Russian pipeline projects.
The South Stream
Known as the South Stream, the South European pipeline is
the most significant ongoing Russian project. After years of
negotiations and finalisation of a series of bilateral agreements
between Russia and Bulgaria, Serbia, Hungary, Greece,
Slovenia, Austria and Croatia, its construction commenced on
7
th
December 2012 near Anapa in Russia’s Krasnodar Territory.
Connecting Russia to Austria to feed the mentioned
countries, and the Republika Srpska via Serbia and Croatia, the
estimated US$ 40 billion project will export 63 billion m
3
/yr of
Russian gas to the EU market for 30 years. The 2446 km pipeline
consists of onshore and offshore sections. The 930 km offshore
section will be laid at a maximum depth of 2250 m and will
consist of four parallel lines. The offshore section will run under
the Black Sea from the Russkaya Compressor Station on the
Russian coast to the Bulgarian Varna Port through the exclusive
economic zones of Russia, Turkey and Bulgaria. The first line is
scheduled for operation in late 2015. Reaching its full capacity
in 2018, the South Stream is a joint venture of Gazprom (50%),
Eni (20%), EDF (15%) and Wintershall Holding (15%).
The South Stream’s importance is not just confined to the
undertaking’s sheer size, but, perhaps more so, because of its
multidimensional political significance. To start with, it is the
only ongoing project in the so-called southern corridor that
has practically won over the two EU-backed rival projects,
the Nabucco and the Trans-Adriatic pipeline (TAP). The latter
meant to decrease the EU’s dependency on Russia by importing
gas from the Caspian region (Azerbaijan and eventually
Turkmenistan) to feed the EU countries via a southern route.
Of these two projects, whose negotiations started in their
earnest in the second half of the last decade, the Nabucco
and its downsized version (Nabucco West) were permanently
shelved last year when the consortium developing Azerbaijan’s
Shah Deniz Phase 2, their only gas supplier, opted for the TAP
(870 km; 48 in.; 10 billion m
3
/yr; US$ 1.5 billion). Having lost
Iran as a supplier, due to the EU’s policy of exclusion of Iran
from its energy sector worsened by the recent EU sanctions,
the latter’s construction, which now has only Azerbaijan as its
gas supplier, is planned to begin in an unspecified time in 2016.
However, despite the EU’s backing, there are doubts about its
realisation and profitability, which has so far convinced E.ON
and Total to withdraw from the project. Given this situation, the
ongoing construction of the South Stream is surely a blow to
Brussel’s plan to decrease Russia’s role in the EU energy market.
Moreover, it also decreases the energy importance of the TAP
by securing more gas for the EU and reducing its profitability,
which may motivate some other TAP’s stakeholders to withdraw.
The ongoing South Stream also reveals the eroding power
of Brussels over its membership. Despite Brussels’ efforts and its
worsening ties with Russia over Ukraine, six EU members have
opted for the Russian pipeline designed to bypass Ukraine for
Russian gas exports to the EU.
In fact, Brussels has sought to stop the project on regulatory
grounds, questioning its ability to comply with its competition
regulations in the case of Bulgaria. Work on the South
Stream pipeline was halted in Bulgaria in June 2014 after the
EU Commission declared it in breach of the EU’s energy and
public procurement laws. However, the Bulgarian authorities
have made it clear that they will work towards settling the issue
and will not opt out of the project. Bulgarian Foreign Minister
Kristian Vigenin echoed this on 8
th
July, stating: “The South
Stream project is important for the energy security of Bulgaria,
southeastern Europe and the EU as whole,” while adding “We
hope our active dialogue with the European Commission will
allow us to resume its construction on Bulgarian territory in the
shortest term.”
Other EU countries on the pipeline route have reiterated
their commitment to realising the pipeline despite the EU
opposition. Following the EU-forced construction halt in
14
World Pipelines
/
SEPTEMBER 2014
