Russia’s Gazprom said on Monday it was canceling construction of the South Stream pipeline due to European opposition.
“The project is closed. This is it,” the company’s chief executive, Alexei Miller, told reporters.
Miller’s announcement came after President Vladimir Putin had said earlier in the day Russia could not carry on with the project if the European Union was opposed to it. “We think this is against Europe’s economic interests and is causing damage,” he said during a visit to Turkey.
Planned for completion in 2018, South Stream was supposed to pump Russian natural gas to Bulgaria’s Black Sea port of Varna before extending overland through Serbia, Hungary and Slovenia.
The $40 billion project looks to be the latest victim of the European-Russian trade war that started earlier this year when Russia occupied and annexed Ukraine’s Crimean Peninsula. The European Union and the United States responded by imposing economic and financial sanctions.
However, the European Union had been uneasy about South Stream for much longer, planning to construct a competing pipeline, Nabucco, from the Caspian Sea through Turkey into southeastern Europe.
Last year, Nabucco was scuttled when gas supplier Azerbaijan chose to participate in the Trans Adriatic Pipeline instead, a joint venture between Switzerland’s Axpo, Norway’s Statoil and Germany’s E.ON companies.
European companies were also heavily involved in South Stream. France’s EDF, Italy’s Eni and Germany’s Wintershall had partnered with Gazprom to build it while Germany’s Siemens was contracted to supply the control systems.
That did not stop the European Commission from leaning heavily on prospective partner countries, notably Bulgaria, to suspend their participation in the project after Russia invaded Ukraine in March.
South Stream’s cancellation is hardly an economic loss for Russia which is rather suffering the effects of Western economic sanctions and declining oil prices worldwide. It is estimated the country uses just 60 percent of its present pipeline capacity. South Stream was never needed. It would have been politically convenient for Russia in that it bypassed Ukraine which currently transits half of the natural gas it sells to Europe.
The countries in the European Union get roughly a quarter of their gas from Russia but many of the new member states in Russia’s former sphere of influence are almost wholly dependent on it.
In the wake of the Crimean crisis, leaders asked the European Commission to draft proposals for reducing that dependence. Options are raising storage capacity — which European countries have already done since Russia twice shut gas transfers to Ukraine in 2006 and 2009, leaving other countries in the cold — and building more interconnectors to enable gas that is imported from Norway, Qatar or even the United States to flow the other way, preventing Russia from blackmailing former satellite states in Eastern Europe.