South Stream Progress Improbable Under EU Pressure

BMI View : Bulgaria's halt of works on the South Stream pipeline validates our expectation that the Ukraine-Russia standoff would impede further progress on the project. We maintain that the EU's stance will prevent advancements on the pipeline, rendering the originally planned start-up date of 2015 untenable.

Bulgaria has halted work on the South Stream pipeline following political pressure from the European Commission (EC) and the United States. The EC had asked the Bulgarian government to suspend work on the South Stream gas pipeline, threatening infringement proceedings, on the basis that it violates EU law. Bulgaria started work on the pipeline in October 2013, eager to reduce its dependency on gas piped through the Ukrainian pipelines. The country was also keen to earn the transit fee.

This development supports our view that the Ukraine-Russia standoff and deteriorating relations with the West would delay Russian-sponsored projects, most notably Gazprom's flagship European project, South Stream. We had specifically the pipeline would likely be obstructed from further progress in the short term. This is a symbolic penalisation by Europe for Russia's involvement in Ukraine and an attempt to prevent a further increase of EU dependence on Russian gas ( see, 'Far Reaching Implications From Ukraine Standoff,' March 5).

Continued High Dependency On Russian Gas
Russian - European Gas Trade Data

BMI View : Bulgaria's halt of works on the South Stream pipeline validates our expectation that the Ukraine-Russia standoff would impede further progress on the project. We maintain that the EU's stance will prevent advancements on the pipeline, rendering the originally planned start-up date of 2015 untenable.

Bulgaria has halted work on the South Stream pipeline following political pressure from the European Commission (EC) and the United States. The EC had asked the Bulgarian government to suspend work on the South Stream gas pipeline, threatening infringement proceedings, on the basis that it violates EU law. Bulgaria started work on the pipeline in October 2013, eager to reduce its dependency on gas piped through the Ukrainian pipelines. The country was also keen to earn the transit fee.

This development supports our view that the Ukraine-Russia standoff and deteriorating relations with the West would delay Russian-sponsored projects, most notably Gazprom's flagship European project, South Stream. We had specifically the pipeline would likely be obstructed from further progress in the short term. This is a symbolic penalisation by Europe for Russia's involvement in Ukraine and an attempt to prevent a further increase of EU dependence on Russian gas ( see, 'Far Reaching Implications From Ukraine Standoff,' March 5).

Continued High Dependency On Russian Gas
Russian - European Gas Trade Data

Gazprom has been labouring to overcome European Union (EU) regulations against its South Stream gas pipeline project, which would be capable of carrying 63bcm of Russian gas into Central and Eastern Europe (CEE) via the Black Sea.

South Stream To Bypass Ukraine
Proposed South Stream Pipeline Route

The pipeline would reduce Russia's reliance on Ukraine for gas transit into the wider European gas market. Gazprom has been negotiating with the EU to seek an exemption from the EU's Third Energy Package, which stipulates that gas companies make their pipeline available to third-party gas access.

We maintain that the EU's stance will bar further advancement on the pipeline in the short term, making it increasingly impossible that the project will meet its start-up date of 2015 as originally planned.

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Related sectors of this article: Oil & Gas, Transportation
Geography: Bulgaria
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