GAZPROM WANTS EUROPE
WSJ. As the European Union hosted talks Tuesday on the threat of disruptions to natural-gas supplies amid Russia-Ukraine tensions, OAO Gazprom executives were in Brussels trying to press ahead with their own pipeline project.
Russia's state-run energy giant wants to build a €16 billion ($22 billion) pipeline to send natural gas from Russia, across the Black Sea, and into Italy. The route avoids Ukraine, through which about half of Europe-bound Russian gas flows.
But in the wake of Russia's annexation of Crimea, that pipeline, called South Stream, has become another political flash point between East and West. And a handful of large European companies, all partners with Gazprom in the offshore section of the project, are walking a fine line between the two sides.
The talks held Tuesday by EU Energy Commissioner Günther Oettinger focused on growing concerns in Brussels about a potential disruption of natural-gas supplies to Ukraine itself. Those were attended by Ukraine's Energy Minister Yuri Prodan and industry representatives, a European Commission official said.
Meanwhile, the fate of South Stream is in limbo. Mr. Oettinger froze high-level political talks between the EU and Russia related to final approval of South Stream last month.
Talks between Gazprom and EU bureaucrats on Tuesday involved only technical issues. Absent were executives from Gazprom's partners—Italy's Eni SpA, Germany's Wintershall Holding GmbH and Electricité de France SA.
Paolo Scaroni, chief executive of Eni, which holds a 20% stake in the project, told an Italian parliamentary committee last month that the future of South Stream was "somewhat murky."
Wintershall, the gas and oil subsidiary of Germany's BASF, last month criticized Mr. Oettinger's decision to freeze high-level talks.
"If anything, the approval procedures should be accelerated, not delayed," Wintershall Chief Executive Rainer Seele said then. Eni and Wintershall said Tuesday they had no further comment. Representatives of EDF declined to comment.
Despite the uncertainty, Gazprom, which holds a 50% stake in the project, is pressing ahead with construction. The group is laying pipes in Russia, Bulgaria and Serbia. The pipeline could be operational by 2015.
"We cannot fully avoid transit risks without building South Stream. This is why we are moving so confidently towards starting the project in 2015," Gazprom Director General Alexander Medvedev told investors in London last month. Gazprom representatives declined to comment for this article.
The project would cement Russia's position as Europe's dominant supplier of natural gas. It already meets 30% of Europe's annual needs.
By skirting Ukraine, South Stream could better insulate Europe from thesort ofsupply disruptions that have flared in past disputes between Moscow and Kiev.
The standoff between Western capitals and Moscow over Crimea has also renewed calls among many politicians to intensify efforts to wean Europe off Russian gas altogether.
The EU is pursuing another project to bring gas from offshore Azerbaijan to markets in Europe via Turkey and Greece, and into Italy. But that pipeline won't be operational until 2019.
Without South Stream, Europe may struggle to source enough natural gas to meet demand, said Jonathan Stern, a fellow at the Oxford Institute of Energy Studies, a U.K.-based think tank.
Egypt's natural-gas exports are dwindling and Libyan supplies are unpredictable. Algeria, Europe's third-largest supplier after Russia and Norway, is sending more to Asia, Mr. Stern said.
Meanwhile, substantial imports of cheap shale gas from the U.S. could still be years away given infrastructure and political obstacles.
"The EU has to make some decisions," said Mr. Stern. "If they don't want Russian gas, then we'll have a lot of very different problems to contend with which we don't have the answers to."
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