By Gabriele Steinhauser in Brussels, Sean Carney in Prague and Emre Peker in Istanbul
BRUSSELS--The European Union sought Tuesday to deflect
responsibility for Russia's plan to abandon an ambitious
natural-gas pipeline through Europe amid questions about whether
the project was truly dead.
Russian President Vladimir Putin's surprise announcement that he
would drop the South Stream pipeline under the Black Sea to
Bulgaria in favor of an alternative route through Turkey put the EU
in a complicated spot.
Brussels has been working to reduce Europe's heavy reliance on
Russian energy, an effort that took on added urgency this year with
the conflict in Ukraine--a major transit country. But until
alternative suppliers have been secured, European countries,
particularly in the southeast, remain vulnerable to any cutoff in
shipments.
While the route via Turkey could supply gas to Bulgaria, Greece
and other countries in the region, it won't be as extensive as
South Stream, which was to stretch as far as Austria.
Construction launched with much fanfare two years ago, but the
$20-billion project ran into trouble earlier this year when EU
antitrust authorities said Russia's OAO Gazprom, as half-owner of
the pipeline, couldn't control its entire capacity as well.
After Russia challenged EU competition and energy market rules
at the World Trade Organization in April, the EU halted all talks
with Moscow on the project.
Monday night in Ankara, Mr. Putin blamed the EU for his decision
to drop South Stream. But officials in Brussels rejected that
charge and said talks on resolving the legal dispute would
continue.
"Gas pipelines in Europe must be built and operated in line with
EU legislation," said Anna-Kaisa Itkonen, an EU spokeswoman for
energy matters.
She also said a previously scheduled meeting with the energy
ministers involved in South Stream would take place next week to
discuss how the project could be workable under EU law.
Russia said Tuesday that it was intending to deliver its gas to
other regions. "Those who 'buried' this project should calculate
the consequences," Foreign Ministry spokesman Alexander Lukashevich
said.
However, analysts played down Russia's abilities to sell large
quantities of natural gas outside Europe.
"There is no other market," said Christian Egenhofer, a senior
fellow at Brussels-based think tank Centre for European Policy
Studies. "So this is not really a threat."
Russia has been seeking to strengthen economic ties with
countries that haven't joined EU and U.S. sanctions over the
Kremlin's intervention in Ukraine, including Turkey and China. But
the Turkish market is relatively limited and a new deal to send
more natural gas to China has been delayed.
Europe's other options include the Southern Gas Corridor
project, which would bring central Asian and Middle Eastern gas to
Europe through Turkey and Greece. In addition, Slovak pipeline
operator Eustream said Tuesday it is starting talks with potential
partners to connect Western European pipeline networks with eastern
and southeast Europe to help wean the region off Russian gas. But
any such projects would also take years to realize.
Turkish Energy Minister Taner Yildiz said Tuesday that Russian
and Turkish agencies were working toward a final deal on the new
pipeline. But he said it was too soon "to pronounce the final word
on these matters today."
Officials in countries that stood to benefit from South Stream
questioned whether Russia's decision was final or a political ploy
to gain more favorable terms.
"This is a tactical step from Russia; this is not a final
decision. This is a tool for pressure on Bulgaria," Martin
Dimitrov, the deputy chairman of the energy committee in Bulgaria's
parliament, told Bulgarian Radio.
Serbia's government, a 50% stakeholder in the Serbian section of
South Stream, said it was waiting for official clarification from
Moscow.
Saipem SpA, a unit of Italian energy company Eni SpA that has a
EUR2 billion ($2.5 billion) contract to install the first sub-sea
line for South Stream, said Tuesday it hadn't been contacted and is
continuing to carry out its work. A Saipem ship in charge of laying
the pipes left Bulgaria on Monday for the Russian Black Sea
coast.
Analysts at Bernstein Research noted that significant resources
have already been invested in the project.
"Hence purely from a project economic stand point it would not
be an easy decision to make," they said in a note. "We think it is
possible that the decision may be reversed."
Others voiced doubts that the alternative route through Turkey
to Greece would turn out to be more viable than South Stream, in
part because Gazprom wouldn't be free of negotiations with a
transit country, which it had hoped to avoid in bypassing
Ukraine.
Hasan Ozertem, an energy analyst at the International Strategic
Research Organization in Ankara, cautioned that the ruble selloff
and capital flight from Russia this year will make financing such a
project more difficult--especially since the Turkey route is poised
to be less lucrative than South Stream.
"The observation that Turkey is the alternative to the South
Stream is very ambitious; we must wait a bit longer," he said.
Eric Sylvers and James Marson contributed to this article.
Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com,
Sean Carney at sean.carney@wsj.com and Emre Peker at
emre.peker@wsj.com
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