South Stream Flop Means EBRD to Help Wean Balkans off Russia Gas

The European Bank of Reconstruction and Development is trying to help central and eastern Europe diversify away from Russian gas after President Vladimir Putin abandoned a $45 billion South Stream pipeline to the Balkans.

The EBRD will focus on reviving the construction of a gas pipeline between Serbia and Bulgaria, which the two countries had put on the back burner until the South Stream project was scrapped two weeks ago, Suma Chakrabarti, the London-based lender’s president, said in an interview in Bloomberg’s Prague office.

“If South Stream isn’t going to happen, the whole merit order of the projects below it will now change,” Chakrabarti said yesterday. “We’ll start looking at all these projects and see if they’re economically viable. The Serbia-Bulgaria one is high up on the list.”

Putin’s decision to walk away from the 2,446-kilometer (1,520-mile) project, designed to bypass Ukraine and link Russia directly with the European Union through the Black Sea, disappointed governments in Bulgaria and Serbia, which depend almost entirely on Russian gas transported through Ukraine.

The EU started to challenge the agreements between nations hosting South Stream and Russia as early as 2010 and kept up pressure on member states, including Bulgaria, to stay within European law, which doesn’t allow suppliers to operate the pipelines.

Crimea Annexation

As Russia’s annexation of Crimea and its support for armed separatists in eastern Ukraine further soured relations with the 28-nation bloc, opposition in Europe intensified and Putin scrapped the plan Dec. 1.

The two nations are concerned Russia could disrupt supplies through Ukraine as the conflict between the two nations drags on. They were also hoping to become important transit countries themselves, with Bulgaria earning 400 million euros ($496 million) a year in fees and Serbia about 200 million euros.

Slovak gas pipeline operator Eustream AS is proposing a 570-kilometer (354-mile) link across Romania that would connect its network with Bulgaria. It said the project may cost 750 million euros and carry 20 billion cubic meters annually.

Scrapping South Stream “concentrates the mind on the fact that you need to diversify your energy sources,” Chakrabarti said. “We will look at any projects and see if they’re economically viable.”

North-South Corridor

Across the region, eastern European leaders have urged increased cooperation in building gas interconnecting pipelines and other projects to complete the so-called north-south corridor.

Poland and Croatia are both building liquified natural gas terminals. Slovakia and Hungary expect to start operating a new link in January 2015. The Czech Republic and Poland are also planning an interconnector.

While backing eastern European ambitions to reduce dependence on Russian gas supplies, Chakrabarti said the biggest push should be to improve the region’s efficiency.

“Eastern Europe needs a number of big-ticket projects, but my own belief is that the long-term issue in this sector is energy efficiency,” he said. “We are still sitting in the most energy-intensive region in the world because of the legacy of Communism, and we really need to change that.”

Before it's here, it's on the Bloomberg Terminal.