A Russian charm offensive in the pipeline wars

By Joshua Chaffin

In the corridors of Brussels’ elegant Stanhope Hotel on Wednesday afternoon, the well-turned-out movers-and-shakers of the European energy world were marvelling at the sizeable budget and high-profile guest list for the event they were attending.

Soon to share a dais were Günther Oettinger, the European energy commissioner; his Russian counterpart, Sergey Shmatko; Alexei Miller, the chairman of Russia’s Gazprom; and Paolo Scaroni, the chief executive of Italy’s Eni. The ballroom was appointed with flat-screen video monitors and rows of chairs with corporate gift boxes.

The event was a sort of a Brussels coming-out party (and charm offensive) for South Stream, a Gazprom-backed pipeline project that aims to carry Russian and Caspian gas under the Black Sea to Bulgaria, where it would then fork off to Italy and Austria. South Stream’s backers, which include Eni, and now BASF, are due to decide next year whether or not to push ahead with the €15.5bn investment necessary to complete the sprawling project.

There is one big problem hanging over South Stream: it is a direct competitor to the rival Nabucco pipeline backed by the European Commission. For the Commission, the great appeal of Nabucco is that it would bring Azeri gas to Europe while skirting Russia and Ukraine, thus helping to ease Europe’s dependence on its biggest supplier and transit country, both of which have proven dangerously unreliable in the past.

In Brussels, officials tend to regard South Stream warily as a spoiler devised to thwart Nabucco and extend Russia’s dominance over the European energy market. Hence the fancy party, and the determination to prove that South Stream might be something else.

> South Stream On The Map Of Europe
Specifications of the South Stream Project
One after another, Miller, Scaroni and others took turns praising its virtues, arguing that their pipeline would be essential to help quench an ever-increasing European demand for gas, particularly at a time when nuclear energy appears to be in retreat.

Oettinger, whose remarks were the most anticipated, proceeded cautiously, explaining that he had come to the event “to listen and to learn.” South Stream gas could help Europe’s goal of diversification by tapping into new supplies and a new transit route, he conceded. He also promised that the EU would not impose undue administrative burdens on the project.

But, to the disappointment of his hosts, the commissioner insisted that the EU would enforce its energy liberalisation rules on any pipeline crossing into its territory. Those rules would require Gazprom to open South Stream to independent suppliers, something the vertically-integrated Russian company is loath to do.

Undaunted, the project’s advocates pressed the case that Europe had nothing to fear from Russia. Shmatko argued that the two parties were, in fact, inter-dependent, since Europe was Russia’s biggest energy customer. In a well-tuned historical reference, he argued that such mutual dependence was at the heart of the peaceful bargain that France and Germany struck when they launched the EU.

Miller, meanwhile, insisted that Gazprom’s pipeline investments were not a threat to EU projects, but a sign of its commitment to be a truly reliable supplier. “In the 21st century, we can supply as much gas to Europe as Europe will demand,” he promised.

The business case for South Stream certainly seems more appealing at a time when Nabucco is being plagued by doubts about its projected costs and whether its backers can round up enough gas to fill the pipe. Just last month, they announced a one-year delay to the project.

Oettinger, however, left early. The most significant message of the afternoon might have come from someone who was not even in the room: it was an email from the commissioner’s assistant, which arrived in the middle of the South Stream presentation, reminding reporters: “EU strategy has not changed. Southern Corridor – including Nabucco – is EU priority.”