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Russia scraps massive South Stream gas pipeline project

02 December 2014

On December 1, Russia announced it was scrapping the planned $40 billion South Stream project to supply 63 billion cubic metres (bcm) of natural gas a year from Russia to south-eastern Europe. This would have been equivalent to more than 10% of European demand, and is another casualty of the sanctions the EU has introduced because of Russia's actions in Ukraine.

Stock image
Stock image

The announcement came during a visit by Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller to Turkey, during which Putin proposed building the pipeline to that country instead and offered Russian gas at a discount.

Relations between Russia and the EU have been strained by the crisis over Ukraine, and Brussels had frozen the project’s approval process as part of its sanctions package. Weak European gas demand and energy prices would also have affected the economic justification.

Russian state-controlled Gazprom sells most of its gas under oil-linked contracts. With oil prices falling 40% since June and European gas demand down 10% since 2010, Gazprom's gas revenues have plunged.

Gazprom meets almost a third of Europe's demand, which in turn makes up 80% of its revenues.

The notion of running South Stream to non-EU member Turkey is not new and is seen by some as a political ploy by Russia to win the support of those EU members in favour of the pipeline. The gas discount offered to Turkey casts further doubt over a project that was already economically doubtful, and would be far too big for Turkey alone to receive all the gas, supplying four times its annual needs.


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