Following last week’s announcement on the South Stream project cancellation, last Saturday (6/12) Gazprom CEO Alexei Miller gave an extensive interview to a major Russian TV channel, Russia 24. In his interview Mr Miller explains the reasons for abandoning South Stream, outlines Gazprom’s prospects of the new gas delivery route through Turkey and touches upon the project’s financial aspects.
Here are the main highlights of the interview. You can also watch the full interview online via this link (in Russian):
- Decision to cancel South Stream: Such questions cannot be spontaneously taken in the course of the negotiations. Of course the Turkish side was aware of Russia’s plans to abandon South Stream, but the final decision was taken during talks between Presidents Erdogan and Putin. This decision is final. South Stream is cancelled. Bulgaria did not give a construction permit to build South Stream neither onshore, nor in its territorial waters and economic zone. This doesn’t concern the Third Energy Package, and the European Commission is not the one to blame in this particular situation. It is the Bulgarian government that did not provide us with the construction permits. Therefore, the definitive decision to cancel the project was made.
- South Stream in Bulgaria: In June 2014 the European Commission sent an official letter to Bulgaria [suspecting it of violating European public procurement rules]. Its aim was twofold: to penalize Bulgaria and to punish it for going ahead with the project together with Russia. In reality, the project has been on hold for the past six months. Saying that the ball is in Russia’s court now is just shifting the blame on others.
- On losses to Bulgaria: this country will bear significant losses due to the South Stream cancellation. Approx. €3bn will not be invested in Bulgaria. More than 6.000 jobs will not be created. Moreover, Bulgaria will lose its status of a transit country. For the time being, Bulgaria transits 18bcm of gas to Turkey, Macedonia and Greece. Once the new pipeline is built, these gas volumes will go via Turkey.
- South Stream in Turkey: Turkey will become a major transit country, and it will transit approx. 50bcm of Russian gas through its territory. This will increase Turkey’s geopolitical status in the region. It will become a big gas hub in the South similar to what Germany is in the North of Europe.
- Ukraine’s transit status: Once the new pipeline becomes operational, the role of Ukraine as a transit country will be reduced to zero. We will of course continue providing Ukraine with the volumes it needs for the domestic consumption, but gas deliveries to Europe will go through the alternative routes.Gas will not pass through Ukraine or Bulgaria, but will be delivered to the EU from another side. Once the pipeline reaches the EU, European consumers can pick up gas at the Turkey-Greece border. In this case, the Third Energy Package norms will not be applied to these deliveries.
- Gazprom’s gas delivery model: In principle, the decision to abandon South Stream is the beginning of the end of Gazprom’s model when the company focused on direct gas deliveries to the end consumer in the European market. If the consumer doesn’t want the goods to be delivered to his home directly, then he has to get dressed and go to the shop. In our case, the shop is the delivery point, which will be on the Turkish-Greek border.
- Gazprom’s investments: It’s of course a pity that the South Stream project has been cancelled. A lot of time and efforts have been invested into it project, but we’ve acquired knowledge and experience in due course. Nothing is lost. We’ve invested about €4bn into gas transport infrastructure in Russia to develop the Southern Corridor to deliver gas to the Russkaya compressor station. All these investments will be fully used to implement the new gas project to Turkey.
See here for Energy Post editor Karel Beckman’s view on the South Stream decision. We will publish two more analyses later this week.