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Does the Ukrainian Crisis Revolve Around This Pipeline?

South Stream pipeline’s planned route through the heart of Europe

South Stream pipeline’s planned route through the heart of Europe

Now that all eyes are on Ukraine and the potential of a bigger war looms, there’s never been a more important time to understand what is at stake.

As WhoWhatWhy readers know, the real reasons surrounding a conflict are often buried under the headlines and rhetoric. So it shouldn’t come as any surprise that, behind the scenes, oil and natural gas are driving a big piece of the U.S. response to Russian involvement in Ukraine.

If you want to understand where the rubber meets the geopolitical road in the Ukraine war, you need to learn about the 1,480-mile South Stream natural gas pipeline.

The pipeline is core to the larger battle being fought over Europe between Moscow and Washington. It may even have been a motivation behind Russia’s annexation of Crimea.

Why does South Stream matter? It’s a $21.6 billion project to connect Russia’s gas reserves—the world’s largest—to Europe’s markets.  Europe relies on Russia for about 30 percent of its natural gas.

Any delays in finishing the pipeline—scheduled for completion in 2018—can only help Russia’s competitors in the international energy business.  And one player gearing up to challenge Russia in the European energy market is the United States.

This year, the United States became the largest producer of natural gas and oil hydrocarbons in the world, surpassing Russia and Saudi Arabia. There’s solid evidence that the U.S. is seeking both commercial advantage and political influence by gaining a foothold in Europe’s oil and gas markets.

The evidence comes, in part, from the targets the Obama administration has chosen to punish for Russia’s annexation of the Crimean peninsula. All of this raises the question of how much the confrontation in the Ukraine is about who gets to sell natural gas (and later oil) to one of the world’s biggest energy consumers: Europe.

PIPELINE POLITICS

South Stream pipeline map.

South Stream pipeline map.

South Stream owes much of its existence to the 2005-2010 Russia-Ukraine gas disputes, which left as many as 18 European countries cut off from Russian gas. Gazprom, Russia’s state-run energy company, proposed South Stream as a way to circumvent Ukraine and ensure an uninterrupted, diversified flow to Europe. It found a willing partner in the Italy’s state-controlled oil and gas company, Eni S.p.A., and seven other gas-hungry countries.

To truly understand how intrinsic South Stream is to Russian economic influence over Europe, one only has to look at some of the targets of U.S. sanctions against Russian or Russian-linked companies. Two of them were directly aimed at slowing down or stopping South Stream.

The first South Stream-related company the U.S. targeted was Stroytransgaz, which is building the Bulgarian section. Putin ally and billionaire Gennady Timchenko owns it and he’s already on the sanctions list. So Stroytransgaz had to stop construction or risk exposing other companies on the project to the sanctions.

The second entity in the sanctions crosshairs was a Crimean company called Chernomorneftgaz. After the Russian annexation, the Crimean parliament voted to take over the company, which belonged to the Ukrainian government. And guess what that company owned? The rights to the exclusive maritime economic zone in the Black Sea.

That’s important because Russia routed the pipeline on a longer path through the Black Sea that cut out Ukraine. It avoided the Crimean waters, going instead via Turkey’s.

EUROPEAN SPLIT

The European Union attacked South Stream through a non-binding resolution that called for a halt to its construction. EU member states don’t have to pay attention to the resolution, which was mostly designed to put public pressure on Russia.

That’s where split among countries in Europe became evident.

Several that will benefit from the pipeline have spoken out in support of construction or moved ahead with agreements to build it. Italy wants it to proceed, and Austria and Russia signed an agreement to construct a segment, in defiance of the EU’s position that the pipeline may violate anti-competitiveness rules. Germany’s Siemens will supply the instrumentation for the pipeline.

123One country that’s trying to avoid getting trampled as the giants fight is Bulgaria. It still has close ties to Russia but is subject to pressure from the U.S.

Both have taken aim at its section of South Stream, which is where the pipeline will come ashore from Russia via the Black Sea. The European Union warned the Bulgarian government that its construction tender broke EU rules. The U.S. sanctioned the company that won the tender, Stroytransgaz.

Bulgaria is arguing to the EU that its position is legally sound, and that its economic stability is at risk without South Stream. Bulgaria has no other secure gas supply so “the national interest must be protected,” Economy and Energy Minister Dragomir Stoynev said.

In the meantime, Bulgaria is hard at work finding a way around the U.S. sanctions. The government may hand the construction job to a subsidiary of Gazprom that’s building the Serbian section. And here’s a neat trick: the Bulgarian government approved an $835 million loan from Gazprom to pay for it, secured by future revenue from the pipeline.

JUST BUSINESS, NEVER POLITICAL

According to Vladimir Putin, South Stream is just a business venture facing ordinary commercial setbacks that have nothing to do with Ukraine. Washington is interfering, Putin said after meeting with his Austrian counterpart in June, because the United States wants to supply the gas to Europe. “It is an ordinary competitive struggle. In the course of this competition, political tools are being used,” he said, referring to the U.S. sanctions.

Undoubtedly, the United States has a massive commercial interest in selling natural gas to Europe. Thanks to the abundant supply created by the domestic shale-gas boom, the U.S. may be able to export liquefied natural gas to European buyers in the near future. Already, Washington has licensed seven export facilities; about 30 more are awaiting approval. The first exports could start by the end of this year.

Pipeline Work

Pipeline Work

But since all the infrastructure to ship liquefied gas is not yet in place, Serbian Prime Minister Alexander Vucic, a South Stream proponent, has ridiculed the idea of U.S. gas exports to Europe in a year or two as “fairy tales.” Meanwhile, Putin has pointedly said that piped gas will always be cheaper than the liquid form, and Moscow has consistently claimed that Europe’s gas bill will rise if it chooses alternatives besides Russian natural gas.

However, there’s more than natural gas at play in Europe’s energy future. The Obama Administration is negotiating a free trade agreement with Europe that could legalize American oil exports for the first time since 1975. This would bring U.S. exporters in direct competition with Russia, which sells 84 percent of its oil exports to Europe today.

At the moment the South Stream pipeline is projected to generate approximately $20 billion a year in income.  With that much money at stake, the politics behind the armed confrontation in eastern Ukraine takes on a new dimension: Is the shooting war there part of larger, longer-term conflict—a continuing battle between the United States and Russia for global energy dominance?

 

THUMBNAIL 

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  • Jonathan Mark

    And this situation is confronting my home and the Commonwealth of Massachusetts as the energy policy leaders are pushing for new infrastructure paid by everyone.. so they pipe the gas close to the Atlantic coast. Meanwhile the side-effect of such policies are polluting water systems and harming renewable energy projects with cleaner results. http://youtu.be/pXghvnpPtl4 We must turn all this insanity around.

  • ICFubar

    On a smaller scale Todorova is correct. The larger scale is that what this is all about is western elitist world hegemony and the continuation of the owners of the Federal Reserve System world reserve currency status using the Federal Reserve Note and debt money and fractional reserve operations systems. This is the third attack by the “west” on the Russian state owned Gasprom corporation, which poses the threat of ending the petro dollar paradigm by the acceptance of other than Federal Reserve denominated paper as payment. Syria is one, to disrupt the Iranian,Syrian (Shia) gas pipeline to Europe and Gasprom’s prominent role therein. Cyprus is the second, to get at Gasprom Bank operations there. Ukraine is the third in the attempt to bring Gasprom to heel and to deny Russia economic gain by her strengthening trade with Europe, all potentially outside the control mechanisms of the western Money Masters. Whenever a reader comes across the phrase “U.S. interests” they should substitute “Western Money Masters with their financial practices and entourage of multi-national corporations” as being the true entity behind the U.S.of A. moniker. No nation or group of nations is to be allowed to challenge “U.S. interests and supremacy” and are to be kept in line by any means suitable or available. Know your enemy.

    • BillFranklins

      Very good point.

    • News Nag

      If it wasn’t the Fed participating there’d just be a different method of doing the same thing. This obsession with the Fed is juvenile and myopic.

      • ICFubar

        Not so, the Fed, representing the re conquest of America in 1913 by the British and European money trusts (Rothschilds etc.) is the all powerful institution of western civilization…now the question is how much the Chinese have in shares of the Fed (controlling interest?) since the default on IRS stream fund derivative used for collateral by the Wall Street Bankers (and JP MORGAN headquarters at I Chase Pl.) for use of Chinese Mao era gold and most favored nation status. Come grasshopper we have much to discuss….

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  • BillFranklins

    Excellent report, Sylvia (and great graphics). Thank you very much for illuminating the “big picture” over there.

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  • http://www.thewordofgord.com Gordon Phinn

    This partial illumination is most welcome; thank you!

  • fuddled

    The map is a very useful reference. But, I would like to see pipelines in a more distinct color from the brown. I’d also like to see where NATO bases are with dates when they were built.

  • Unite2014

    As soon as you start with the nonsense that Russia annexed Crimea, I stop reading. Correct or not, you lost all credibility right there.

    • Bryce

      Why? Have trouble accepting reality?

    • Al_Martinez

      Huh? The Crimean people voted overwhelmingly to rejoin Russia, after which, Russia annexed it. What don’t you get?

  • frumpycanard

    Strange i linked here buy an article labelled rescuing the petro dollar war ukraine whatever. There are too many op-eds still pushing this idea. Anyone who is listening to or analyzing the more educated economic types realize the petro-dollar is dead and unrecoverable war or no war. Those with serious holding have long escaped the death throws of the USD. The shoe has dropped we just haven’t heard it hit the ground. Turkey who is key geopolitically and otherwise is the last country that will probably slide east. Germany is a sure bet, there is nothing left the brics are growing by the day. War may be on the horizon but its for a far more sinister purpose if any other than saving the petro-dollar (can’t be done at this point).

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  • edith

    I am more and more convinced that we have to in est in renewable energy
    Put solar panels on your roof and use wind energy for example.

    • prairiedog

      King Cong will fight you to the death before they let that happen….(Coal,Oil,Nuclear,Gas.)

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  • goingnowherefast

    And the little people get trampled, enslaved, poisoned and slaughtered in the process of this war for energy profits. We need to build locally controlled renewable sources as fast as possible. Put these psychopaths out of business before they turn the planet into a cinder.

  • planckbrandt

    Sorry. Can you be a little clearer about just who is this “United States” you are talking about as antagonist here? The story falls down there. We need to start naming proper private names and stop letting them hide behind the flag. We know that this government belongs to them so let’s just start naming them and stop fooling around.

    • News Nag

      There’s probably a Leak for that.

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  • prairiedog

    When is someone going to tell Murder Inc. to get fu*ked?

  • Jerry Howe

    This is certainly the best tool to use in neutralizing the Russian bear. Take away the Russian’s market share in oil exporting, and their arrogance will decrease.

    • Ric

      But its arrogant stupidity on the USSA’s behalf because they are not going to be delivering LNG in any real quantity any time soon.

      Loss of European business is also being offset by the $400 Billion non-petrodollar deal Russia scored with China. Europe needs Russia far more than it needs Europe.

      Looking at all this it reeks even more of more moronic US global monopoly building based once again on poor business strategy.

      • Jerry Howe

        Then perhaps the state of California has a trick up it’s sleeve in the way of energy.

        Don’t underestimate it.

        • Ric

          Its a moot point when the BRICS and now possibly Germany to boot are tired of our epic fiscal responsibility.

          Its all about them crashing the petrodollar and leaving us isolated. Like I said good luck in that pie in the sky LNG strategy you got there!

    • News Nag

      Yes, but U.S. arrogance will never subside. Always with the American propagandizing. It’s like it’s your high school team, rah rah.

  • News Nag

    If U.S. leadership was about its citizens and not certain international monopolies, it would keep all that gas in reserve at home, such as oil is kept in salt caverns along the Gulf Coast. There should be more oil kept also. Once you accumulate a decade’s worth of reserves, then throw the investment and industrial switch to full alternative energy. That would be leadership.

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  • Man on the street

    I am not sure if I am simple minded or the world leaders are evil people?
    If the US needs to purchase coffee, for example, an importer broker is contacted by Starbucks for a ton of coffee beans? Say Columbia sells it for $1000, and Somatra sells it for $1100? the Starbucks purchasing agent will make the decision and wire the money. THAT SIMPLE!
    At no time, the US State Dept. will be threatening any of these suppliers to reduce the price of coffee? And, even if they did, and managed to hustle Columbia out of $100 discount, who is going to keep that discount? Is it the American government?
    This was simply an anology of purchasing a commody on the open market. Similarly, when Exxon needs crude oil, they call Canad, Venezuela, or Texas and get their oil at whatever the world market price of that day?
    So, why are we having wars to control or manipulate natural gas pipeline? How is the US government benefit if a pipeline goes through Afghanistan or not? After all, the US military does not build pipelines.

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  • MissyT111

    A country’s leader even our most pitiful Prez is suppose to do the best for his/her country. That is what they are suppose to do, the BEST for their own people. Now that does not mean that war is an answer nor is invading other countries. So barring that any sanctions or tariffs are okay with me. The absence of tariffs in the USA has lead to the demise of manufacturing and that is very sad.