FRANCE READY TO LEAP ON THE SOUTH STREAM BANDWAGON
By Vladimir Socor

Eurasia Daily Monitor
Oct 31 2008
DC

French Minister of Foreign Affairs Bernard Kouchner said on October 28
that France, the current holder of the EU presidency, was interested in
both the Nabucco and South Stream gas projects and was willing to join
either. Kouchner suggested, moreover, that Russia be included in the
Nabucco project (Kommersant, October 28). His statement contradicts
the EU’s declared policy of supporting Nabucco against its rival,
Gazprom’s South Stream. Furthermore, participation of Gazprom in
Nabucco would defeat that project’s basic rationale, which is to
reduce Europe’s dependence on Russian gas. Nabucco with Russian
participation would virtually become a "South Stream Lite."

Kouchner’s Kommersant interview coincided with his talks in
St. Petersburg with Russian Minister of Foreign Affairs Sergei
Lavrov. In those talks, Kouchner called for a quick start to EU-Russia
negotiations on a partnership agreement, signaling a return to
business-as-usual after Russia’s recent invasion of Georgia.

The French government seeks access to Russian gas
(Russian-delivered, Central Asian gas in this case) for the Gaz de
France company. State-controlled Gaz de France had earlier proposed
joining the Nabucco consortium but was ruled out by Turkey in 2006,
following a French parliamentary vote that had recognized "the Armenian
genocide." Paris is apparently now switching sides to South Stream
(or looking to change Nabucco’s rationale in Gazprom’s favor).

The EU’s French presidency is the second consecutive presidency
consorting with South Stream. In June of this year, Slovenia
completed its presidency of the EU by signing up with Gazprom for
South Stream. Flouting EU policy becomes all the easier when even
the presiding countries do so without apparent compunction.

EU support for Nabucco is admittedly largely declarative, and even
those declarations sound trembling. The EU Commission’s standard line,
as repeated most recently by Energy Commissioner Andris Piebalgs’
spokesman Ferran Tarradellas, is that the EU supports Nabucco as a
priority project but does not oppose South Stream and leaves it up to
member countries to choose one project or the other (NewsIn, October
29). The implication is that the EU (or at least the commission) has a
preference rather than a clear policy and does not insist on carrying
it through. Publicly at least, the commission does not seem to make a
strong case for Nabucco on the basis of a comparative analysis with
South Stream from the standpoint of EU energy security. Instead,
the European Parliament has had to take the lead in that regard
(see Zeyno Baran, "Security Aspects of the South Stream Project,"
Hudson Institute, October 2008).

South Stream’s perceived bandwagon is screeching to a halt,
however. The anticipation of shortfalls in Russian gas production,
drying up of international credit, and Gazprom’s own precarious
financial position are now delaying the project. Moscow has now
decided to postpone not just the start but even the detailed planning
for this project.

On October 23 and 24 Gazprom announced that it would postpone the
technical and economic assessments for South Stream’s sections
through Greece and through Serbia from 2009 until 2010. Those
assessments are supposed to be included in the final assessment of
the overall project. Construction is now envisaged for the period
from 2012 to 2015 instead of 2010 to 2013. There is no agreed cost
estimate for this project thus far. According to Gazprom’s Foreign
Economic Relations Department chief Stanislav Tsygankov, the company
has yet to choose among various options for pipeline routes through
a number of countries and possible branch offs from those sections
(RosBusinessConsulting, RIA Novosti, Interfax, October 27, 28).

Gazprom has hinted that it might invite Romania into the project,
instead of Bulgaria or Serbia, or perhaps alongside them (see EDM,
October 22, 24). Such hints are designed to induce various countries
to compete against each other for future access to limited amounts
of Russian gas. As Sergei Emelyanov, first deputy head of Gazexport
(Gazprom’s export arm), has made clear, Gazprom is involved in
discussions with multiple countries about their participation in South
Stream, so as to have a clear picture about the market potential and
political situation in each customer country (NewsIn, October 28).

At the moment, Bulgaria seems to be raising objections to Gazprom
owning South Stream’s pipeline section on Bulgarian territory. For its
part, Serbia (where pro-Europe parties are on the ascendancy) has four
issues in dispute with Gazprom: the annual capacity of the proposed
pipeline (Belgrade had expected more than 10 billion cubic meters);
the price of future supplies of gas; the valuation of the state company
Serbian Oil Industry (NIS, which Gazprom Neft wants to acquire on the
cheap, as part of the South Stream package); and Belgrade’s effort
to eliminate the Gazprom-created intermediary YugoRosGaz, which is
now at the center of a corruption scandal in Serbia.

Facing those problems in Bulgaria and Serbia, Gazprom hinted that
it might circumvent both of them by offering to include Romania
in the South Stream project. While some elements in the Romanian
government seemed receptive, President Traian Basescu and Prime
Minister Calin Popescu-Tariceanu have publicly turned down the
suggestion. Both leaders cited considerations of energy security and
supply diversification in reaffirming Romania’s unambiguous choice
of the Nabucco project (Evenimentul Zilei, Cotidianul, October 30, 31).