No Southstream. What to do now?
Southeastern Europe is heavily dependent on Russian gas, supplied via Ukraine. The EU considers it important that the gas supply and the routes by which gas is transported to the EU are diversified. Can the desired diversification be realized?
Recently, in December, the Russian state gas company Gazprom decided to pull the plug on the Southstream project. This pipeline was supposed to run from Anapa in Russia (near Sochi) via the Black Sea to Bulgaria. From there, it would continue overland via Serbia, Hungary and Slovenia to Italy and Austria. The plan was to realize branches towards Bosnia and Croatia.
The offshore part of the pipeline was 50% owned by Gazprom, 20% by Eni, while Wintershall and EDF each had a share of 15%. (Eni, Wintershall and EDF have since sold their shares in Southstream to Gazprom.) The overland part was supposed to be divided 50/50 between Gazprom and the national network operators in the various countries. The pipeline would have a total length of nearly 2,500 km, and have a total capacity of 63 billion m³ per year. The first gas should have been flowing through the pipeline in 2015.
But it was not to be. From the start, the European Commission had its objections to the construction. One problem was that only participating companies were allowed to use the Southstream pipeline. This is a breach of European regulations, specifically those on Third Party Access (TPA). This regulation states that parties cannot have the exclusive right to use a pipeline. Another problem was that Gazprom, as owner of the pipeline, was both producer and seller of the gas. This breaches the 'unbundling' regulations. The rate system for transport costs was also far from transparent; again something prohibited by the EU. Lastly, the European Commission had its doubts about the tender process. It was striking that only Bulgarian and Russian companies have received orders.
For Italy and other countries in the Balkans, Southstream was a way to reduce their dependence on gas supplies via Ukraine. The gas outages in 2006 and 2009 highlighted this aspect for this region. In addition, Gazprom wanted to use Southstream to reduce its dependence on the transit route through Ukraine, a route which in itself offers adequate pipeline capacity for delivery to Southeastern Europe.
By stopping Southstream, the negotiations with Turkey about an alternative route gained momentum. These have resulted in the Turkstream project.
In practice, the Turkstream pipeline is comparable to the Southstream pipeline. The pipeline starts at the same location as the planned Southstream pipeline and follows part of the original offshore route. Halfway, the pipeline makes a turn towards Turkey. The pipeline comes ashore at a different point, at Kayakoy, and then runs overland toward the Turkish-Greek border town of Ipsala (see Figure 1). Another important difference with Southstream is that the planned infrastructure within the EU is missing. The gas supplied to the Turkish-Greek border has to be distributed from here by the EU itself. The capacity of 63 billion m³ over four pipelines is equal to that of Southstream. A maximum of 50 billion m³ will eventually arrive at the EU border. The rest will remain in Turkey. The first pipeline is scheduled to be completed in December 2016.
The Nabucco project was initiated by European energy companies to get gas from Azerbaijan to the EU. The pipeline would pass through Turkey and then be split. The first part would run through Bulgaria, Romania and Hungary towards Austria, the other part through Greece and Albania to Italy. The annual planned capacity was between 10 and 23 billion m³. This initiative was finally abandoned in 2013, because investment decisions had already been taken for the TANAP/TAP and Southstream projects, which would follow the route of the planned Nabucco project. Now that Southstream is discontinued, and the Turkstream project will only run up to the border with the EU, this alternative is back in the picture. However, commercial parties (still) do no see a business case to realize this project.
Trans Anatolian Pipeline (TANAP) and Trans Adriatic Pipeline (TAP)
The TANAP/TAP pipeline will transport gas from the Shaz Deniz II field in Azerbaijan through Turkey, Greece and Albania to Italy. The TANAP part is 80% owned by the state oil company of Azerbaijan (SOCAR) and 20% by the Turkish government, and runs via Turkey. The TAP part passes through Greece and Albania to Italy, and is owned by BP (20%), SOCAR (20%), Statoil (20%), Fluxys (19%), Enagas (16%) and Axpo (5%). Construction started in 2014 and the line is expected to be ready in 2019. The maximum capacity is 16 billion m³ per year. In the future, this can be raised to 31 m³. The Turkstream pipeline would eventually be connected to the TAP at the Turkish-Greek border. From here, the EU will be responsible for the further distribution of the gas.
The Persian pipeline is supposed to transport gas from Iran to the EU. The pipeline should get a maximum capacity of 32 billion m³ per year and run towards the EU via Turkey. For the time being, in view of the sanctions against Iran, realization of this project in the short term is not realistic.
With the discontinuation of Southstream, the EU was presented with a fait accompli. Until now, Gazprom was the only party that was willing to invest in gas infrastructure in Southeastern Europe. The EU has committed itself to realize infrastructure in the region. However, there are no concrete plans as of yet. Commercial parties appear unwilling to step in, because the investments are high while sales volumes are relatively small. It's a waiting game, until we see how the EU's ambitions in terms of diversification of gas supply in this part of Europe will be realized.
 In this article, Southeastern Europe comprises the countries Greece, Bulgaria, Romania, Hungary, Slovenia and the Balkans.