SOFIA, Bulgaria (AP) – President Vladimir Putin heads to Bulgaria this week to push a Kremlin plan to build a web of pipelines that would cement Europe’s dependence on Russia’s energy supplies.
The former Soviet satellite would serve as a gateway for a major new natural gas pipeline, called South Stream, which could branch off in several directions across the continent, dashing the European Union’s hopes to reduce its growing reliance on Russia.
The ambitious and costly project, part of Russia’s efforts to expand its political as well as its economic clout inside the EU, will likely top the discussions during Putin’s two-day visit, which begins Thursday, although there are no specific deals to be signed.
As part of the Kremlin’s energy blitz, Russia promised to extend South Stream into Serbia and build a huge gas storage facility there – moves that would turn the Balkan nation into a major hub for Russian energy supplies to Europe.
The proposal came as Belgrade has turned increasingly away from the West and toward Russia, which has staunchly backed it in the international debate over independence for Serbia’s Kosovo region.
The Russian offer, however, comes at a price: Russia wants to take a controlling stake in Serbia’s state oil company at a fraction of its market value. Pro-Western factions in the Serbian government have balked at what they called a “humiliating offer,” and it remains unclear whether the agreement can be reached in time for Putin’s visit to Sofia.
Russia last year used a veto threat in the UN Security Council to block a Western-backed plan for internationally supervised statehood for Kosovo, and negotiations ended last month without agreement. The Kosovo dispute has badly strained Belgrade’s relations with the West, and Russia has used the rift to strengthen business and diplomatic ties to Serbia.
“Kosovo would have been independent for at least a half year already if not for Russia’s stance,” said Fyodor Lukyanov, the editor of Russia in Global Affairs magazine. “Russia expects some kind of gratitude from the Serbs.”
Serbia’s Prime Minister Vojislav Kostunica, leader of the nationalist faction, has said that the country must sign this “strategic” deal with Russia because the gas pipeline would give Serbia a reliable supply of energy. He said the agreement had nothing to do with Kosovo.
Media reports said Kostunica could meet with Putin in Bulgaria on Friday to finalize the gas deal, but officials haven’t confirmed it. Russia apparently wants to secure the deal before Serbia’s presidential election this weekend.
The South Stream project was announced last year by Gazprom, Russia’s state gas monopoly, and Italy’s ENI SpA, which set up a parity joint venture to develop a marketing and feasibility study for the 900-kilometer (550-mile), $10 billion pipeline.
South Stream would be laid down under the Black Sea from Russia to Bulgaria, and from there could split off in several directions: north through Hungary to reach Austria, south through Greece and on to Otranto, a port near the southeastern tip of Italy, or west to Serbia.
Using the pipeline offer as an inducement, OAO Gazprom has pushed for a majority stake in Serbia’s NIS state oil company.
Over the past several months, Gazprom and Serbian officials have bargained over the terms of the deal, triggering infighting in the Serbian Cabinet. Some Serbian officials say Russia’s initial offer of $600 million for a 51 stake in NIS represents just one-fifth of its market value.
Gazprom’s push for Serbia’s oil assets comes amid the expansion of its oil subsidiary, Gazpromneft, and is part of the company’s efforts to acquire lucrative downstream energy assets across Europe.
Gazprom’s aggressive acquisition policy, and the Kremlin’s confrontational approach to relations with the West, have raised fears in the US and Europe that Russia will increasingly use its control of energy supplies for political leverage – threatening to cut off countries that oppose its policies, and rewarding those who support them.
In the winter of 2006, a dispute over pricing led Russia to cut off gas supplies to Ukraine. That, in turn, briefly cut supplies to Europe. A year later, a similar dispute with Belarus led to a drop in the flow of oil from Russia to its western neighbors.
Gazprom, meanwhile, has worked steadily to extend its pipeline system.
In the north, Gazprom mapped the $7.3 billion Nord Stream pipeline under the Baltic Sea, which is expected to begin pumping gas in 2010. It would eventually carry 55 billion cubic meters (1.9 trillion cubic feet) of gas annually from the northwestern Russian port of Vyborg to the northern German port of Greifswald, bypassing current routes through Poland, Belarus and Ukraine.
In the south, Gazprom already has built the Blue Stream pipeline under the Black Sea into Turkey, and has talked about the pipeline’s possible expansion.
Russia is, in fact, building more pipeline capacity than it will have oil and gas to export. This will mean Gazprom can ship energy to the most lucrative markets – and that the Kremlin could more selectively use energy to reward or chastise its Western neighbors.
“Gazprom wants to build as many pipelines as possible to have more room for maneuver – if it has a rift with one transit country it may channel gas flows through others,” Lukyanov said.
The EU has intensified its search for alternate supply routes to reduce its reliance on Russia, which now supplies up to 40 percent of the EU’s natural gas and up to a third of oil imports of some European countries.
The US and the EU have supported the proposed Nabucco pipeline, which would channel gas from the Caspian region to Turkey through Romania, Bulgaria and Hungary to Austria and onward. But the project has been delayed by political hurdles and economic uncertainty.
Both South Stream and Nabucco would supply markets in Southern and Central Europe with gas from the Caspian and Central Asia.
“Bulgaria has become an increasingly important transit state for energy resources, which has resulted in it becoming more and more of a key player,” said Artyom Konchin, an oil and gas analyst with Aton Capital brokerage in Moscow.
The Kremlin scored a major victory last month when it signed a deal with Kazakhstan and Turkmenistan to build a huge natural gas pipeline along the Caspian Sea into Russia. The agreement dealt a blow to US and EU hopes to persuade Turkmenistan to ship its vast gas resources under the Caspian Sea, bypassing Russia.
Some Bulgarian political parties, as well as environmentalists, oppose the proposed Gazprom pipeline project. “The visit will accelerate large-scale projects that will turn Bulgaria into a Trojan horse of Putin’s oligarchy in the EU,” said Atanas Atanassov, one of the leaders of Democrats for Strong Bulgaria party.
During Putin’s visit, Russian, Bulgarian and Greek officials are expected to set up a company to build a Russian-controlled oil pipeline from Bulgaria’s Black Sea port of Burgas to northern Greece, advancing a previously reached deal.
