Russia Energy as Diplomacy in the 21 st Century HOW DID THE SOUTH STREAM FAIL?

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1 Russia Energy as Diplomacy in the 21 st Century HOW DID THE SOUTH STREAM FAIL?

2 Main gas lines to EU go via Ukraine and Belarus Russia controls around 25% of global gas reserves (as per Gazprom) Energy exports make up almost 60% of RF exports Gas exports to EU almost 25% of EU consumption of around 660 bcm (billion cubic meters per year) Almost 80% of gas to Europe went via Ukraine By Samuel Bailey

3 Russian exports of gas to Europe in bcm per year

4 Gas disputes with Belarus and Ukraine both initially enjoyed RF domestic prices Belarus Ukraine 1990 s RF offered to convert debt to equity (weak collection led to debt) In 2002 agreement for Gazprom to buy 50% of transmission capacity and Belarus to buy at domestic prices for 5 years - did not materialize In 2004 Russia switched off supply for unpaid debts In 2007 an agreement almost reached Etc. to today 1993 RF offered to write of debt for Black Sea Fleet concessions and a nuclear deal, later on offered to convert debt to equity Winter of 2005/6 RF accused Ukraine of not paying its debts and syphoning off gas intended for other European countries In again, and since the war in Ukraine again and again

5 European countries by dependency on Russian gas in 2009 RF estimates EU to be 30% dependent on Russian energy, to rise to 70% by 2030 Europe has 38 gas entry points. 25 pipelines (from Russia 3 pipelines directly, 4 through Belarus and 5 through Ukraine, 9 from Norway, 1 from Tunisia, 1 from Morocco, 1 from Libya, and 1 from Turkey) and 13 LNG terminals. The entry capacity of gas pipelines is around 370 bcm (e.g. 190 bcm from Russia, 38 bcm from Algeria and 127 bcm from Norway) and around 100 bcm of existing LNG terminals. Com (2009) 363 Estonia 100% Slovenia 52% Finland 100% Austria 49% Latvia 100% Poland 48.15% Lithuania 100% Croatia 37% Slovakia 98% Germany 36% Bulgaria 92% Italy 27% Czech Republic Romania 27% Greece 76% France 14% Hungary 60% Belgium 5%

6 North Stream Project started in 1997, but first line inaugurated in November 2011, second in October Total capacity is 55 bcm per year, and two planned additional lines will double capacity to 110 bcm per year by 2019 Because of EU restrictions, only 22.5 bcm of the capacity is used Added to this, South Stream capacity projected at 63 bcm per year would provide sufficient capacity for all Russian gas exports and room for some growth Ukraine and Belarus networks would become obsolete for transport to Europe, so both would be used only for direct supply of gas. This would open both to more direct influence of Gazprom

7 South Stream a project to bypass UKR (final capacity projected at 63 bcm per year) Global Orange revolution ousted the Kutchma regime, Timoshenko becomes PM and is forced out in ten months March 2005 Russia and Ukraine clash over alleged debt and price of gas and transit. Russia claims Ukraine is syphoning off gas intended for the EU June 2005 OMV of Austria, MOL Group of Hungary, Bulgargaz of Bulgaria, Transgaz of Romania and BOTAŞ of Turkey sign an agreement on Nabucco pipeline from the Caspian Sea South Stream project June 2007 Russia and Italy announce the South Stream project Nov 2007 ENI and Gazprom establish an SPV, the project takes off, Bulgaria, Greece and Hungary join in 2008 January 2009 Russian, Italian, Bulgarian, Greek and Serbian national companies sign an agreement on South Stream Serbia December 2006 Gazprom and Serbiagas agree to do a study for a new pipeline January 2008 Serbia and Russia sign a strategic energy deal (just weeks before Kosovo declares independence), including 51% of NIS for Gazprom for EUR 400 mil, Banatski Dvor storage facility and routing of the South Stream through Serbia

8 South Stream Continued Global January 2009 Gazprom halts all exports to EU via Ukraine because of debt disputes, restart exports before the end of the month EU called the dispute incredible and unacceptable, affected countries SK, BG, MOL and others protested with both RF and UKR September 2011 European Commission started unannounced inspections in the natural gas sector on allegations of engagement in anticompetitive practices South Stream Project January 2008 ENI and Gazprom form a South Stream AG, expanded in October 2011 to include EDF and Wintershall for the Black Sea section November 2009 Slovenia joins the project March 2010 Croatia joins the project (to be connected only) June 2010 EDF (France) joins the project December 2011 Turkey issues final permits Serbia November 2009 Serbiagas and Gazprom form South Stream Serbia AG November 2011 Banatski Dvor underground storage facility was inaugurated (cap. 450 mcu) October 2012 South Stream Serbia signs the financing decision for Serbian portion first such decision for the project. Hungary, Slovenia and Bulgaria followed within months.

9 South Stream Continued Global September 2012 EC opens formal investigation against Gazprom June 2013 Shah Deniz chooses TAP as partner over Nabucco, killing the project January 2014 Crisis in Ukraine starts, in March RF occupies Crimea, conflict in Donbas flares up in the spring, RF annexes Crimea December 2014 European Commission announces South Stream agreements in several countries violate EU rules January 2015 Gazprom announces it will stop deliveries via Ukraine by 2019, warns that the EU must prepare infrastructure April 2015 Commission preliminary findings indicate that Gazprom abuses dominant position in at least some countries (by territorial restrictions and unfair pricing) January 2016 Some criticism from EU on continuation of the North Stream project. South Stream Project December 2012 Groundbreaking ceremony for the Russian portion July 2013 Macedonia joins the project (to be connected) April 2014 European Parliament calls for abolition of South Stream April 2014 Austria signs an agreement on implementation of Austrian portion June 2014 Bulgaria stops implementation on EU objections December 2014 Russia announces cancellation of the project because of western sanctions and lack of construction permits. Serbia November 2013 works start on construction of the Serbian portion in village Sajkas in Vojvodina. Estimated cost of the Serbian portion EUR 1.9 billion. December 2014 Serbia announces losses of EUR 30 million (11 m for projects and preparatory works, 19 m for land expropriation) January 2016 Serbia estimates the project might not be dead (or could be succeeded by Tesla) (Gazprom confirms South Stream project to be dead)