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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Russia Makes Major Headway with South Stream Pipeline

Russia’s South Stream pipeline plans have increased momentum, netting formal agreements in the Balkans, most recently with Bosnia’s Serb-dominated entity of Republika Srpska and Macedonia. The president of Bosnia’s Republika Srpska entity, Milorad Dodik, and Russian Energy Minister Sergei Shmatko signed an agreement on 15 September in Moscow formally expressing interest in the construction of a branch of the South Stream pipeline through Republika Srpska.

If a feasibility study carried out by Russia’s state-owned gas giant Gazprom over the next couple of months proves positive, Republika Srpska would build a 480-kilometer branch of the South Stream pipeline through northern Bosnia, carrying up to 1.5 billion cubic meters of gas annually. Dodik told news agencies after the signing of the agreement that he expected the feasibility study to be completed and the green light given for the project within a couple of months.

Then, on 1 October, officials in Macedonia met with a Russian delegation from Gazprom to discuss the feasibility of participating in the South Stream pipeline. Macedonia is interested in joining the project, with Macedonian Finance Minister Zoran Stavrevski telling local media on 2 October that the country’s involvement would lead to long-term gas supply stability that is of “crucial importance for the country’s economic development … and foreign investment.”

Gazprom Project Director Leonid Chungov said that the Russian state-owned gas giant was now considering the feasibility of Macedonia’s involvement in the pipeline, telling reporters that “we have come to a joint conclusion that, due to rising gas demand, we need to consider the option of a gas pipeline transiting Macedonia.” Slovenia signed on to the project in November 2009, and Croatia signed on in March 2010.

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Analytical Note:

Macedonia’s involvement in the South Stream gas pipeline is still unclear. Gazprom officials say that it will take at least a year to determine the feasibility and type of role Macedonia could play. At the same time, the Macedonian finance minister told reporters that constructing a branch of the pipeline through the country might not be an option as it would necessarily automatically involve neighboring countries Albania and Kosovo.

Unlike its main competitor, the Nabucco pipeline - a Western endeavor seeking to transport Middle Eastern, Central Asia, and Caucasian gas to Europe, bypassing Russia - Russia’s South Stream pipeline has met with fewer political and logistical obstacles. The South Stream pipeline, which should be operational by 2015, will transport Russian gas to the Black Sea and then on to Europe.

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Serbia, Bulgaria, Hungary, and Greece are all formal participants, while Croatia, Slovenia and Bosnia having formally expressed interest pending further discussions and feasibility studies. The race to complete both pipelines will largely determine the balance of power in the Balkans and the wider region.

While Nabucco has the support of Turkey, Bulgaria, Romania, Hungary, and Austria, the South Stream has the support of Italy, Serbia, Macedonia, Slovenia and Greece. Presently, Russia’s South Stream pipeline plans are more concrete, though in recent months, Nabucco has made some progress.

That said, the back-and-forth between Turkey and the European Union over the former’s membership in the bloc could set more obstacles in the way of the pipeline’s progress. The South Stream pipeline has not been plagued with such disagreements. Serbia stands to become a key regional hub in the South Stream energy setup. Republika Srpska’s participation in the South Stream pipeline became inevitable in 2009 when Serbia’s state-run Srbijagas acquired a 40% share in Republika Srpska’s Gaspromet.

Once the South Stream pipeline is fully operational, Serbia will, as such, control much of Bosnia’s natural gas supplies. In Bosnia, Federation entity gas authorities have criticized the Republika Srpska plan to join the South Stream pipeline as being politically motivated and financially unsound because there is not a large enough consumer base to support the project.

Now, delivery of Federation gas comes only from Serbia, but plans are underway for a pipeline connection to Croatia, according to Federation authorities. According to the director of BH-Gas - the Federation’s gas distributor - Almir Becarevic, European institutions marked the feasibility study for the construction of a 250-kilometer pipeline connecting the Federation with Croatia as the most profitable, and a large share of the financing for that project has already been arranged with the European Bank for Reconstruction and Development (EBRD).   

Charles Kennedy


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