ICIS view: The silent return of the South Stream gas pipe

04 April 2018 11:32 Source:ICIS

LONDON (ICIS)--Despite being officially ditched at the end of 2014, the South Stream natural gas pipe, which would transit Russian gas through southeast Europe to the centre of the continent, appears to be back.

But rather than being developed as a top-down unified project, it seems to be taking shape through piece-meal regional infrastructure developments, some new and some re-purposed.

Having been burnt by its experience with the German OPAL pipe, Russia’s Gazprom originally dropped South Stream because of tightening EU rules regarding third party access and unbundling requirements. It instead moved onto TurkStream, which retained the idea of crossing the Black Sea but delivered gas into Turkey rather than Bulgaria.

At the time of the switch the Russian exporter was explicit that it would no longer seek to develop pipes through EU territory and buyers would need to develop their own infrastructure if they wanted to receive volumes delivered through the new smaller Turkish string. And that has very much been the case, albeit with operators and developers borrowing heavily from Gazprom’s original South Stream blueprint.

Gazprom’s overall strategy – to lessen its dependency on transiting gas via Ukraine – has never wavered, but efficiently rerouting throughput which has title transfer in Austria’s Baumgarten from Ukraine, to Bulgaria or Turkey was always going to be difficult.

But the puzzle finally seems to be coming together.

Last week, the Bulgarian grid operator began the process of gauging market interest to ship gas from the Turkish border onward to Serbia from October 2019. A similar screening within Serbia launched at start of March.

On Wednesday, the operators of Italy, Slovenia and Hungary were expected to detail their plans to construct a two-way pipe across their countries.

If these three projects are matched up with the scale-downed BRUA proposal – which was initially designed to run from Bulgaria to Austria via Romania and Hungary – but now is often referred to as ROHU as it will just link the two middle states, a series of routes begin to fall into place.

The final conundrum of delivering some of the gas to Baumgarten specifically was solved last month with the flipping the main direction of flow on the idle Slovakia-Hungary interconnector. This EU-backed white elephant can now instead facilitate the onward flow to Austria.

A whole separate leg that would run straight from the Greek-Turkish border to southern Italy – as has already been proposed by the backers of the Poseidon project – would complete the updated South Stream map.

The original South Stream was intended to deliver 63 billion cubic metres (bcm)/year, while TurkStream is only currently being developed for 31.5bcm/year, with half destined for the Turkish market. But through the new patchwork of pipes and grid upgrades, a number of routes to market that track the original South Stream look to be reforming over the coming years, with Serbian remaining the main artery.

While this new network alone would not be quite enough for Gazprom to displace the Ukraine route – and gaps clearly remain – in combination with Nord Stream 2 the Russian exporter’s dependency on the now ironically named Brotherhood pipe would be massively reduced.

Back in 2014 when South Stream was officially dropped, a now-retired colleague who was an expert on all things Russian gas, wryly remarked: “Gazprom never cancels a gig.” How right she was. tom.marzec-manser@icis.com

By Tom Marzec-Manser