Publication: Eurasia Daily Monitor Volume: 5 Issue: 121

The European Union’s current presiding country, Slovenia, has decided to join Gazprom’s South Stream pipeline project, rival to the EU’s top-priority Nabucco project. The Slovenian government announced this decision in the third week of June, with less than two weeks remaining in its presidential term. The government might have allowed a minimally decent interval between its EU presidency and its decision in favor of Gazprom. That the EU’s presiding country should so starkly contradict the EU’s declared policy testifies to a chronic failure to provide for long-term energy security in Europe.

During the Economic Forum in St. Petersburg in early June, Slovene officials discussed joining South Stream with Gazprom’s management, crowning the talks held by Gazprom CEO Alexei Miller in April in Slovenia. According to Slovenia’s Economics Minister Andrej Vizjak, the country will sign an agreement with Gazprom this summer. Apparently, Slovenia will not consume South Stream gas itself but will provide transit and presumably also storage service for the gas destined for Italy (Radio Slovenia, Dnevnik, June 12, 13).

The Slovene decision to open that route increases the range of Gazprom’s transit options and, thus, its possibilities to play off various transit and consumer countries against each other. South Stream is not a line, but an elaborate design of lines and extensions along several proposed routes. Multiple countries are scrambling to obtain the maximum possible gas volumes from Gazprom, each country competing with fellow-EU member countries for Russia’s favor.

The small country Slovenia had no possibility to influence EU policy even as holder of the EU presidency. The EU as such lacks the tools for an external energy policy. The government in Ljubljana did prepare diligently in advance of its presidential term and made some initial attempts to develop an energy security agenda for the EU. But those attempts could not possibly fill the policy vacuum in Brussels, let alone offset bilateral deal-making with Russia by European players, big and small. Thus, Slovenia has become the latest country to jump on Gazprom’s South Stream bandwagon after Italy, Austria, Greece, Bulgaria, Serbia, and the Hungarian government (as distinct from the private Hungarian MOL company, which remains loyal to the Nabucco project).

The South Stream bandwagon is likely to prove illusory, despite its declared projected capacity of 30 billion cubic meters per year. With Russia’s stagnant production, Gazprom will almost certainly lack sufficient gas to fill South Stream for additional customers. On June 24 Gazprom indirectly corroborated this by announcing that more than half of South Stream’s total projected capacity would be used to meet already existing supply commitments (RIA Novosti, June 24).

This confirms, first, that South Stream pipelines would divert part of the existing transit volumes from Ukrainian pipelines (as expected all along). Second, it implies a net increase of less than 15 billion cubic meters per year to Gazprom’s existing exports, even in case of full-capacity use. Any increase would, moreover, depend on growing Russian intakes of Turkmen gas, which would deny that gas to the Nabucco project.

The EU’s credibility with regard to the Nabucco project is eroding. Austria, which launched Nabucco as an EU project during its presidency of the EU in June 2006, started undermining it barely eleven months afterward. Between May 2007 and June 2008, the Austrian government and OMV company gave Gazprom 50 percent ownership of Nabucco’s designated terminal near Vienna, suggested sharing the use of Nabucco’s throughput capacity with Gazprom, and agreed to build an extension of South Stream through Austria, potentially preempting Nabucco. The other five EU member countries then joined South Stream without audible objections from Brussels.

On balance these countries seem to regard South Stream as relatively more plausible than Nabucco. While the former boasts, with Gazprom and Russia, a powerful producer company and state investor, as well as centralized planning and decision-making, Nabucco possesses none of those three decisive factors.

The EU appointed the former minister of foreign affairs of the Netherlands, Jozias van Aartsen, as coordinator of the Nabucco project in September 2007. His mandate was expanded shortly afterward as “EU Coordinator for the Caspian Sea-Middle East-European Union Gas Route,” with Nabucco as the priority. But in May Van Aartsen took office as mayor of The Hague. He did not relinquish the EU coordinator’s post, claiming that he could perform both duties concurrently; and the EU Commission went along with this pretense. Unsurprisingly under such circumstances, Van Aartsen has not found time even to visit Azerbaijan and Turkmenistan, the main potential suppliers of gas for Nabucco (U.S. Senate, Foreign Relations Committee: “Energy from Central Asia to Europe,” testimony by Zeyno Baran, June 12).

Gazprom, as well as some officials in Brussels claim, for differing reasons, that South Stream and Nabucco are “complementary,” rather than rival projects. Gazprom seeks to tranquillize the EU through this argument, while the EU hopes to avoid looking the loser in a contest against Gazprom. In fact, the two projects will compete against each other for Central Asian gas resources, overlapping transit routes, and European markets along those routes. If South Stream is seen to advance ahead of Nabucco, the latter would continue to be starved of capital investment. The EU may well have to rescue its project by financing it from EU funds.