/ world today news/ When Russia abandoned the construction of the South Stream gas pipeline for the supply of natural gas to the countries of the European Union, and also declared that it would redirect this project in the direction of Turkey, some observers thought that it was a bluff . Others saw the statement as a sign of financial weakness, while there were those who took it as a rebuke to the West over Ukraine and as evidence of President Putin’s intentions to seek new partners.
In reality, this change makes a lot of commercial sense and should have been adopted a long time ago – this is the conclusion of the authors of a new report written by the most informed specialists in the Russian gas industry.
This change also means that Russia’s state-controlled company Gazprom will not be able to completely cut Ukraine out of the transit business, as it was supposed to do with South Stream. And as the report’s authors might add, the new agreement is also good for Europe.
The abandonment of South Stream is part of a more significant shift in Gazprom’s strategy to strengthen the company. Jonathan Stern, Simon Pirani and Katya Yafimava of the Oxford Institute for Energy Research think so.
The previous strategy was to gain access to the distribution networks on the territory of the European Union. And while the report’s authors are more cautious, it could be said that this goal is also partly politically motivated. With its help, it was planned to exert political pressure, and not only “Gazprom” to receive profits. This is one of the reasons why the EU introduced additional rules to prevent the Russian project from happening.
The South Stream project was quite expensive – according to conservative estimates, its price could reach about 20 billion, while some experts thought it would cost 65 billion dollars. It has never made commercial sense – even in the event of an expected sharp rise in natural gas consumption in the EU and in view of prices controlled by Gazprom at the expense of individual long-term contracts concluded with individual customers.
Today, Gazprom is facing new price competition on the spot markets, located in special centers, in gas hubs throughout the territory of the European Union. In addition, new EU rules – some of which are still being written – would force Gazprom to open its European gas pipelines to other suppliers and distributors.
The Ukraine crisis has led EU officials to more aggressively oppose South Stream on the grounds that it does not meet the new rules. And the falling oil prices /to which the long-term gas contracts are bound/ made the economic part of the project look even worse. In the end, Gazprom completely abandoned it.
The Russian company then proposed to redirect the pipeline project to Turkey, which is Europe’s second-largest consumer of Russian gas and the only European market expected to grow rapidly. And the “blue fuel” that Turkey receives today through Ukraine will be delivered directly from Russia. And the additional quantities will be directed to a gas hub on the border of Turkey with the EU and will be sold there. However, Gazprom, as indicated in the report prepared by the Oxford specialists, will, as before, be forced to transit significant quantities of natural gas through Ukraine, at least until 2020.
Today, it is already completely clear that Gazprom’s turn to Turkey is not a bluff – even if the price and route negotiations continue. Gazprom has already allocated funds for the realization of the Turkish project.
But the South Stream decision was made not only because of the price. Other decisions taken at the same time speak of more serious changes: “Gazprom” refused to buy 100% of the “Opal” pipeline, which passes through the territory of Germany. He also pulled out of an advanced asset swap deal that would have seen BASF Group’s subsidiary Wintershall gain access to gas in Western Siberia, in return for Gazprom’s full acquisition of the company. , which stores and trades natural gas in Germany.
Gazprom recently agreed to terms for the supply of “blue fuel” to China and froze its plans for the construction of terminals for the export of liquefied natural gas. Putin is presenting the move as a punishment for the EU, but also as proof that he can find alternative markets. But in essence, Gazprom is returning to the business it knows best of all and which is the easiest: extracting natural gas and delivering it through pipelines.
The Russian gas giant no longer has ambitions related to plans to own the entire European chain from production to consumption. He also does not want to invest money in expensive gas liquefaction technologies. Instead, Gazprom will have ordinary trade relations with the EU in the area of the sale and purchase of natural gas. That’s exactly how it should be.
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Mark Champion, Bloomberg.
Washington / USA
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