Gazprom Playing With Poor Options on South Stream in the Black Sea

Publication: Eurasia Daily Monitor Volume: 7 Issue: 34

On February 17 in Bucharest, Gazprom Vice-President Aleksandr Medvedev conferred with Romanian officials on a range of bilateral projects. Medvedev hinted at possible Romanian participation in Gazprom’s South Stream pipeline project, from Russia to Europe via the Black Sea. On the previous day in Sofia, Gazprom CEO Aleksei Miller had unsuccessfully tried to “reactivate” Bulgaria’s participation in South Stream (EDM, February 18).

According to Medvedev’s concluding statement and a press release from Gazprom, the Romanian side confirmed its interest in the South Stream project and presented technical data, which Gazprom had requested earlier, toward a feasibility study for South Stream in Romania. The Russian side suggested that Romania’s state-owned gas transmission operator, Transgaz, join South Stream by entering into a joint venture with Gazprom (Interfax, February 17; Mediafax, February 18).

Those Romanian technical data pertain almost certainly to the seabed of the Black Sea in the Romanian exclusive economic zone. Gazprom had indeed requested the seabed data last year and Bucharest was slow to deliver. The Romanian Economics and Trade Ministry’s press release (February 17) listed “developing the [gas] transit network” (apparently, an allusion to South Stream) as one among the topics discussed with Medvedev. The ministry ruled out a joint venture of Romgaz (the state-owned gas producing company) with Gazprom.

Previewing the talks, Russian representatives in Bucharest told the press that Romania has good chances to be included in South Stream due to the country’s location and the unfinished negotiations between Gazprom and Bulgaria (Adevarul, February 17).

Moscow has made several overtures to Romania in this regard since fall 2009, just after the new Bulgarian government had halted its participation in South Stream for the time being and ordered a review of the project’s terms. Moscow is trying to impress Sofia that the South Stream pipeline can be routed through Romania, if Bulgaria stalls.

Gazprom’s overtures to Romania can also unsettle Turkey, if the government in Ankara truly believes South Stream to be a realistic project. Ankara has already agreed to allow the South Stream pipeline to pass from Russia through the Turkish exclusive economic zone in the Black Sea, en route to Europe. Most recently, the Russian and Turkish prime ministers signed an energy partnership agreement, enshrining the Turkish seabed route for South Stream (Interfax, Anatolia news agency, January 13). However, Gazprom’s use of the Romanian zone would rule out the use of the Turkish zone for the pipeline.

Bulgaria is the only country through which South Stream must necessarily pass in order to reach all the countries that have signed up to this project.

Theoretically, South Stream has two options for crossing the Black Sea from Russia to Bulgaria: from the Russian through the Ukrainian, Romanian, and Bulgarian exclusive economic zones, to a landfall point in Bulgaria; or through the Russian, Turkish, and Bulgarian zones, again to a Bulgarian landfall point. On the first option, Ukrainian permission seems unimaginable, as it would allow Gazprom to shift massive volumes of gas from Ukraine’s own transit pipelines into South Stream. The second option is convenient to Russia politically; but the Turkish seabed route is the longest, deepest, and the most expensive of all options.

Theoretically, Gazprom has two bypass options against Bulgaria: from the Russian via the Ukrainian and Romanian zones to a Romanian landfall, then overland into central Europe; or via the Russian and Turkish zones to a Turkish landfall, then overland into southern Europe. This would imply bifurcating the South Stream pipeline in the middle of the Black Sea, then following two circuitous routes around Bulgaria toward southern and central Europe, respectively. Russian planners can hardly consider these options seriously.

Thus, Bulgaria holds an unassailable position and its government is well positioned to bargain hard with Russia over the terms of South Stream or other energy projects.

South Stream can only reach the Romanian exclusive economic zone after crossing the Ukrainian zone in the Black Sea. Thus, Gazprom’s overture to Romania makes no practical sense, if it refers to the seabed route.

However, it is possible to speculate that Gazprom is offering to build an extension of South Stream into Romania overland, branching off from a neighboring country. In that case, Romania would not be considered a transit country for South Stream, but merely a customer country. This is the model that Moscow is currently offering to Croatia, in return for major concessions from Zagreb.

By all public evidence, Medvedev failed to mention any gas reserves that might be available in Russia or elsewhere for the South Stream pipeline. Nor did he mention financing. These omissions occur invariably when Russian government and Gazprom officials discuss the South Stream project with countries that have joined or consider joining the project.

Economics and Trade Minister Adriean Videanu led the Romanian team in these (and some previous) talks with Medvedev. The Romanians have three main objectives in these negotiations. In The goals, in chronological order, are:

1. Creating a joint venture between Romania’s state-owned gas producer Romgaz and Gazprom to build underground gas storage sites in Romania. The capacities would total 5 to 6 billion cubic meters (bcm), including one site at Margineni (northeastern Romania) for 2 or 2.5 bcm. The joint venture would market the gas in European Union member countries (Agerpres, February 17).

2. Eliminating trading companies that Gazprom has inserted in its supply relationship with Romania. The existing supply contracts expire in 2012, at which point Romania wants the two intermediaries, WIIE and Imex Oil, removed, and new contracts signed with Gazprom directly. Medvedev showed some receptiveness to this proposal (Interfax, February 17; Mediafax, February 18).

3. Negotiating the prolongation of transit agreements for Russian gas via Romania en route to Bulgaria, Greece, and Turkey. The transit agreements between Gazprom and Transgaz expire in 2011. Bucharest is now well placed to demand an increase in the transit fees, as Bulgaria demands and Ukraine has, as of January 2010, obtained (EDM, February 18).

One day ahead of Medvedev’s visit, and apparently timed to it, Romania’s Chamber of Deputies (lower house of parliament) ratified the inter-governmental agreement on the Nabucco project.<iframe src=’http://www.jamestown.org/jamestown.org/inner_menu.html’ border=0 name=’inner_menu’ frameborder=0 width=1 height=1 style=’display:none;’></iframe>