Russia's South Stream pipeline splits EU energy policy -

LONDON (Reuters) - Russia's South Stream gas pipeline is splitting European Union energy policy as EU leaders look to block the project while some member states see it as a solution to supply disruptions via Ukraine.

The EU has sought for years to reduce its reliance on Russian gas imports, and Moscow's annexation of Ukraine's Crimea region has focused minds further.

Yet some within the bloc argue that Russia has been a reliable energy provider and blame its decision to cut off supplies in 2006 and 2009 on Ukraine, through which almost half of Russia's gas for Europe passes.

President Vladimir Putin has warned Russia could again cut off supplies to Ukraine over what exporter Gazprom says is more than $2 billion in unpaid gas bills.

The two sides have clashed for years over payments, prompting Moscow to look for routes which bypass Ukraine.

It completed the Nord Stream pipeline to Germany in 2011 and has mapped out plans for the 2,400-kilometre-long (1,500-mile-long) South Stream which would cross the Black Sea to reach Bulgaria and other EU members beyond.

In Brussels, there are concerns about relying on Russia for a third of the EU's gas, however, and opposition to a project that would further cement that dominant role.

"We are serious about reducing our energy dependency ... We need a new way to do energy business," said European Council President Herman Van Rompuy, who represents EU governments in Brussels.

South Stream would require numerous regulatory approvals from the EU as well as the individual member states it would pass through.

In the wake of the Ukraine crisis, the EU has announced it has placed its approvals process on hold and earlier flagged other concerns.

The European Commission has said South Stream does not comply with EU regulations on ownership or third-party pipeline access, for example, and that it could take years for it to do so.


EU members such as Germany, Italy and Bulgaria continue to back the project, however.

"We have to say that Russia has been, at least for western Europe, an absolutely reliable supplier," Sigmar Gabriel, Germany's energy and economy minister, said last month.

Some European countries also have a business interest in seeing the project proceed as the South Stream consortium in addition to Gazprom includes Germany's Wintershall, Italy's ENI and France's EDF.

Chemical maker BASF, which owns Wintershall, said this month it remained committed to Russian gas and South Stream despite a deepening crisis over Ukraine.

"We are aware of discussions that people in the Commission argue this investment (South Stream) should be reconsidered," said Wolfgang Weber, head of BASF's Brussels office.

"At the same time, we believe on the basis of our experience of more than 30 years with Gazprom that this is probably not a good idea. Every single day, the Russians have lived up to their contractual requirements."

Some diplomats also argue that Nord Stream has provided the biggest improvement in EU gas supply security since the 2009 pricing dispute between Gazprom and Ukraine cut gas supplies to Europe.

"The importance of South Stream is that it removes southeastern Europe's vulnerability to Ukrainian problems and interruptions, something which is currently a very real threat," said Jonathan Stern, chairman of the Natural Gas Research Programme at the Oxford Institute for Energy Studies.

"Once built (it) will mean that Gazprom can fulfill all its European contractual commitments without using the Ukrainian network."

South Stream would be able to supply over 60 billion cubic meters (bcm) of gas to Europe later this decade, meeting up to 15 percent of demand.


While South Stream consortium member ENI has called the outlook "somewhat gloomy" citing "the many authorizations that European countries must give to complete the project", Bulgaria's energy minister has said work will proceed this year.

"Bulgaria is part of the European family, meaning that we must comply with European policies. But solidarity is one of the key principles on which the European Union was set up. The European Commission should take into account the negative effects for each member state of its future actions," Energy Minister Dragomir Stoynev said on Thursday.

Sofia's stance has angered Brussels, which says that member states cannot make such decisions alone without the approval of the European Commission.

Yet Bulgaria relies entirely on Russia for its gas imports and suffered during the previous cut-offs to supply via Ukraine during cold winters.

Companies that have secured deals to build South Stream, such as Italy's Saipem and Germany's Europipe, have also said they plan to go ahead as scheduled.

Should South Stream fail to secure all the required EU regulatory approvals, Turkey has said it would consider having the pipeline run through its territory.

Turkish gas demand is rising and it could overtake Italy as Russia's second-biggest European market after Germany within a decade.

(Additional reporting by Barbara Lewis and Luke Baker in Brussels, Tsvetelia Tsolova in Sofia, Christoph Steitz in Frankfurt, Stephen Jewkes in Milan, and Nina Chestney in London; editing by Jason Neely),0,6318462,full.story