News broke Monday that Gazprom would no longer move forward with the South Stream pipeline project due to European opposition. Russian President Putin made the announcement after meeting with Turkish President Recep Tayyip Erdogan and Putin said the two countries would cooperate on the possibility of creating a gas trading hub on the Turkish-Greek border.
South Stream has been a controversial project for years, with many in Europe leery of increasing dependence on Russian supplied gas. Gazprom billed the pipeline as a way to increase European energy security by adding an additional supply route.
Source: Gazprom
Russia’s annexation of Crimea from Ukraine significantly cooled relations with the west and resulted in the US and EU imposing economic sanctions against Russia. In the wake of the Ukraine situation, Gazprom signed a historic natural gas supply deal with Chinese buyers.
Deteriorating relations with the west have weighed on South Stream for months as potential legal issues mounted.
“If Europe does not want to carry out (South Stream), then it will not be carried out,” Mr Putin said on Monday… “We are now going to focus our energy sources in other directions.” – As reported by BBC News
One of South Stream’s sticking points was Gazprom’s control of both the gas supply and pipeline network at a time when Europe is liberalizing its natural gas market. Part of Europe’s gas market reform involves the promotion of regional trading hubs that are seen as a way to foster transparent gas-on-gas price formation as opposed to oil-indexed gas pricing.
The fact that Russia may now develop a gas trading hub in Turkey is interesting given the development of European gas trading hubs in recent years. The push toward hub-indexed gas pricing on behalf of the EU and European companies was largely predicated by a desire to move away from the oil-indexed pricing long favored by Gazprom. Recognizing the trend toward liberalized gas pricing in Europe, it appears Gazprom may be adapting by creating trading hubs over which it can maintain a degree of control, or at least maintain direct access to trading and other market data.
