South Stream is Not a Ukraine Bypass Project

Publication: Eurasia Daily Monitor Volume: 7 Issue: 84

Russian Prime Minister, Vladimir Putin, stopped in Kyiv on April 27, following his discussions in Italy and Austria on the South Stream gas pipeline project (Austria Joins Gazprom’s South Stream Project, EDM, April 30).

In Kyiv, Putin obliquely confirmed that Russia would not shift gas volumes from the Ukrainian transit system into the Gazprom-led South Stream. On the contrary, Putin held out the possibility of expanding the Russian gas transit volume via Ukraine westward. He declared that such an increase would only depend on European demand for gas in the years and decades ahead; and he predicted that the demand would grow. The implication is that South Stream (if built) would not take any significant gas volumes away from the Ukrainian transit system. This had already become clear before the regime change in Kyiv.

The new Ukrainian government hopes to boost Russian gas transit volumes via Ukraine to Europe, from the average of 115 billion cubic meters (bcm) per year (pre-crisis), up to 140 or 145 bcm per year (the operating capacity of the Ukrainian transit system), or even 200 bcm per year (illusory). To achieve those increases beyond the 115 bcm level, the Ukrainian government offers to share control of its gas transit system with Gazprom. While in Kyiv, Putin repeated the standard position that Russia will consider those volume increases, depending on what Ukraine can offer in return (Interfax-Ukraine, UNIAN, April 27).

All this confirms that South Stream is not a Ukraine-bypass project in any real sense, but virtually. European countries that joined this project since 2008 had envisaged it materializing at Ukraine’s expense, through a massive shift of gas volumes from the Ukrainian route into South Stream. Thus, South Stream was all along a bizarre project, supposedly to draw its gas from somebody else’s pipeline, not from any gas field development, as no such fields have been identified behind South Stream to date.

Those unfounded expectations were first set when the Ukrainian government of Yulia Tymoshenko signed the 10-year gas supply and transit agreement with Russia in January 2009, which stabilized Russian-Ukrainian gas relations to mutual –and European– satisfaction. This exposed South Stream’s redundancy. During 2009, Moscow renewed or committed to renewing multi-year gas supply and transit agreements with several Central European and Balkan countries that receive Russian gas via Ukrainian pipelines. Significantly, Russia also renewed the transit agreement with Slovakia, which provides the main westbound gas transit route from Ukraine into EU territory. Also in 2009, Gazprom continued negotiations to build storage sites in several Central European countries, for some of the gas that enters those countries from Ukraine. While moving to leapfrog Ukraine in terms of storage, Moscow was clearly not seeking to bypass Ukraine in terms of transit, but rather intending to link the same Ukrainian pipelines with new storage sites across the border in the future.

Thus, even before Ukraine’s 2010 regime change, Russia showed that it was prepared to continue relying on the Ukrainian gas transit system for a long time to come. Nor could Moscow have done otherwise, given its own preliminary estimates in 2009 that South Stream would cost some $25 billion overall (including $8.5 billion for its Black Sea underwater section only). After Ukraine’s regime change, the additional long-term gas agreements just signed with Russia (EDM, April 23) have again shown South Stream’s virtuality and redundancy.

Nevertheless, Russia has promoted South Stream to Europeans as a project to bypass Ukraine, describing that country as an unreliable transit route and a source of risks to European energy security. Moscow propagated this idea in the European media, business, and government circles, particularly those of Germany, Italy, and Austria. The formerly-prevailing, fact-based European view, that Moscow had initiated the January 2006 and January 2009 gas conflicts against Ukraine, soon yielded to an opposite view, that Ukraine is “unreliable” and Russia the reliable partner.

This view was again on display at the South Stream signing event in Vienna (Austria Joins Gazprom’s South Stream Project, EDM, April 30). According to the Austrian government and the OMV company, South Stream increases the security of supplies to Europe by virtue of bypassing Ukraine. They explicitly equate supply security with the diversification of routes from Russia, although the routes stem from the one and the same supplier country, Russia (OMV press release, April 25; Die Presse, Der Standard, April 26; Wirtschaftsblatt, April 27).

Thus, many in Europe welcomed Gazprom’s Nord Stream and South Stream project for circumventing Ukraine. This was Moscow’s promotional argument in Europe for the two projects; but it was mainly aimed against Ukraine before the regime change there. Moscow may at least tone down this argument after the pro-Russian regime change in Ukraine. In any case, Nord Stream (at the very least Nord Stream One) is clearly not a Ukraine by-pass project, just as South Stream is not. Both Streams (if built) would mainly accommodate gas volumes additional to those being pumped through Ukraine.<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>