Does South Stream consider Romania as alternative to Bulgaria?

Will South Stream come ashore in Romania instead of Bulgaria as it was supposed until now? Recent developments suggest that this could indeed be the case.

Last week, a Gazprom delegation visited both Bulgaria and Romania. While Bulgaria showed some interest in revitalising talks with Gazprom after having put on hold all energy projects with Russia last summer, Romania seemed more eager to join South Stream.

On 16 Feb., Head of Gazprom, Alexey Miller, met with the Bulgarian President, Georgy Pyrvanov, and Prime Minister Boyko Borisov. Both sides assessed South Stream's pre-investment stage and agreed on the realisation of a feasibility study and the establishment of a joint project company by Gazprom and the Bulgarian Energy Holding, Bulgarian press reported. Miller reportedly offered Bulgaria the prospect of closing direct contracts with Gazprom after the feasibility study was finalised. Bulgaria has been requesting the removal of intermediary companies in its gas contracts since the January gas crisis (EEO no. 4).

Meanwhile, Bulgaria's Minister for Economic Affairs made clear that he wants to settle current transit issues and demanded an increase of transit duties for Russian gas destined for Macedonia, Greece and Turkey, which currently amounts to $ 1.7 per 1,000 CM / 100 KM. Borisov reportedly also raised the issue of transit duties. Something which was interpreted by some Russian media as another Bulgarian attempt to use 'hard to get' tactics.

Deputy Chairman of Gazprom's Management Board, Alexander Mededev, visited Romania on 17 Feb, apparently to capitalise on his earlier statements that Romania could serve as a transit country for South Stream. Gazprom discussed a possible partnership between Romanian Romgaz on underground gas storage and transit cooperation with Transgaz. Transgaz is already shareholder in the Nabucco project.

In addition, the Romanian side officially for the first time expressed its interest in joining the South Stream project and provided Gazprom with data needed for a feasibility study on the possible transit of South Stream through Romania.

Recent developments raise questions whether South Stream will be re-routed via Romania? Source: South Stream AG

Gazprom has neither denied nor confirmed whether it regards Romania as a transit alternative to Bulgaria. A representative of Romgaz told EEO on 18 Feb. that Gazprom is considering Romania as an alternative. Romania brings along several advantages for Gazprom. Firstly, Romania's future gas market is more promising than Bulgaria's. Romanian domestic production is declining which will increases the country's need for imports. South Stream could simply continue onwards to Serbia. Another advantage, according to the Romgaz representative, is that Romania has a significant potential for underground gas storage, in contrast to Bulgaria. Bulgaria could still receive gas from South Stream via an interconnector with Romania.

South Stream AG was established by Gazprom and ENI. French EDF could receive a 10-20% share in the Black Sea part of the pipeline in the near future. South Stream's planned apacity is 63 BCM. According to official data, Gazprom plans to start the construction of South Stream in 2013.

EEO Focus: It is unclear whether Gazprom does really consider Romania as an alternative. Bypassing Bulgaria would create additional costs and new regulatory issues concerning the crossing of Ukrainian territorial waters. Another issue is how the split off the branch to Greece and Italy will be managed in such a case. Many experts argue that Gazprom is unable to bare the construction costs for South Stream, which raises question about the financing of the project. It is not unthinkable that South Stream will be postponed for several years, i.e. at least for as long as Gazprom is able to rely on stable transits through Ukraine under the new Ukrainian President.