Italy heavily involved in multi billion euro South Stream project

South Stream is the name of the transit pipeline that is intended to transport natural gas from Russia to Southern Europe, bypassing Belarus and the Ukraine. It has been highlighted by Prime Minister Berlusconi as important for the energy needs of Italy as it will eliminate the so-called ‘middle man’ and enhance the security of our energy supply, an issue that was underscored in 2005 when ongoing business disputes between Russia and the Ukraine spilled over into trans-national political issues.

Russia and the Ukraine have a history of tepid political relations since the breakup of the USSR and because of this, many political leaders in Europe have declared that the region cannot be reliant on natural gas supplies which are diverted through the Ukraine. When Russia cuts off the Ukraine’s gas supplies, it cancels the supply to the rest of the Europe as well, a situation that is unsustainable.

Italy news providers and regional European news media reported in 2009 on a series of disruptions of natural gas supply to eighteen European nations due to disputes between Russia and the Ukraine over unpaid Ukrainian debts, with the Ukraine counter-claiming that Russia was being extortionate.

Berlusconi has therefore thrown his weight behind the South Stream project, which will have two entry points to Italy in the south and north. The first part of the South Stream will run from Pochinki compressor station in Russia to the Beregovaya compressor station in the Russian city of Dzhubga. It will then run 900 kilometres under the Black Sea to Varna in Bulgaria, from which it will proceed to the city of Pleven, which acts as a crossroads, with one route going north and the other south through Greece and across the Ionian Sea to Southern Italy.

The northern route will run through Serbia, Hungary and Slovenia, entering Northern Italy via the Austrian border town of Arnoldstein. According to official figures and estimates, the pipeline will supply 63 billion cubic metres of natural gas every year, which amounts to around 35% of Russia’s output and about 90% of Italy’s natural gas consumption.  It will therefore greatly enhance the security of Italy’s gas supply.

The entire project will cost around Euro 19 billion, with some estimates in Italy news media putting the cost closer to Euro 24 billion. The immense cost, as well as the number of countries and national governments involved, has severely slowed work on the project, which was meant to be completed by 2015, but now looks to be heading for a delayed completion.

Funded by three major European companies, Russia’s Gazprom, Italy’s Eni, and France’s EDF, it was recently reported that Gazprom was seeking to have the project given status as part of the Trans-European Network, the legislation which forms the backbone of the EU. A similar project in the north of Europe, the North Stream, was given this status and is now ahead of schedule.

There are ongoing issues over environmental concerns and trans-national disputes, however, with Turkey not yet agreeing to have the 900 kilometre undersea section built in its territorial waters in the Black Sea, this is an integral part of the project as the pipeline cannot be laid across the Ukraine’s exclusive economic zone and Turkey is therefore the ‘king maker’ of sorts on this aspect of the pipeline construction, which is extremely important to Russia, an economic powerhouse in Eastern Europe.

Russia’s Gazprom has the largest interest in pushing the construction schedule forward as it has the largest stake in the initiative at 40%, along with ENI. EDF has invested in 20% of the project thus far, although there is talk of German gas companies getting involved as well.

Although the majority of funding has come through investment from the private sector, there are growing concerns in many of the smaller countries through which the pipeline will run about the immense cost of its construction and the relative economic benefit for them.

Countries like Serbia, Bulgaria and Slovenia have not the funds to invest in the project, but are stalling the construction schedule in the hope of some concessions from major investors, such as the right to re-export the natural gas from their territory, which will drive up the cost for Italy.

Some countries in southern Europe believe that the continent should be moving away from a reliance on Russia for natural gas, which has led to interest in the Nabucco pipeline, which seeks to import natural gas from Central Asian states instead. This pipeline will be over 3000 kilometres long and is scheduled for completion at the same time as South Stream and will cost Euro 7.9 billion. Its capacity will be half of South Stream’s at around 33 billion cubic metres per year.