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Putin announces the cancellation of the South Stream pipeline

Precise takes a look at Putin's decision to put a stop to the proposed South Stream pipeline and where that leaves Russia's search for oil.

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Winter has well and truly settled into Russia, with a chill wind enveloping President Putin and the executives at Gazprom. This week president Vladimir Putin announced he is cancelling the planned $50bn South Stream pipeline.

Gazprom’s CEO Alexei Miller firmly placed the blame at the Bulgarian border, saying “It is the Bulgarian government that did not provide us with the construction permits..Bulgaria will lose its status of a transit country. Once the new pipeline is built, these gas volumes will go via Turkey.”

Analysts are hedging bets on the reasons behind it, with some feeling this could be Moscow calling the EU’s bluff in a bid to engineer support for it; however the continued fall in oil prices – one which was not dealt with by OPEC at the end of last month – has led to a decreasing demand for Russian product, which is particularly bad news for the state owned energy company Gazprom. Martin Vladimirov, an energy specialist at the Centre for the Study of Democracy in Sofia, says in light of this difficult financial situation the pipeline is simply “too big a burden” for Russia right now.

Across central and eastern Europe it received a mixed reaction. To be expected, Ukraine viewed the move with scepticism. Andrii Tiurin from the nuclear company Energoatom said, “The cancellation of South Stream was made for economic reasons, disguised behind a political explanation. Why spend so much money creating alternative routes to supply the same gas? At a time of low and falling oil prices, why spend so much on a project which is unnecessary for Europe?”

Although Ukraine has now signed a contract with Russia that will guarantee gas supplies through the bitter winter, it is looking for alternatives ways of getting the energy.

Hungary and Serbia – the project’s big backers – were dismayed by the announcement. Hungary’s Foreign Minister Peter Szijjarto says the country will be forced to find alternative gas supplies. After a meeting with leaders from the Czech Republic, Poland and Slovakia the Prime Minister Viktor Orban said, “In the 25 years since the fall of Communism we haven’t diversified the gas and oil routes. This is a huge strategic mistake, not only for Hungary but for the entire EU.”

That reaction has been welcomed by energy experts in central and eastern Europe who have long called for adding to the continent’s gas suppliers. They hope that the scrapping of South Stream will speed progress towards a common European Union energy policy. Focus is already shifting to the Southern Corridor, a series of pipelines that would carry Azeri gas to Europe.

Projects are already underway that will realise this over the course of the next four years. Among them are the Hungarian and Slovakian pipeline that’s to open early next year, and work is ongoing with one between Hungary and Romania. Further diversity of supply will come from Poland, Lithuania and Croatia with the construction of liquefied natural gas terminals. Not missing the opportunity to get their hands on a piece of the action, the liquefied gas will come from Qatar and North Africa – and the US could do likewise in the future too. And finally in 2019 Europe will receive gas from Azerbaijan via the Trans Adriatic pipeline.

While Putin’s alternative to the Bulgaria route is seen by many as unrealistic – building a pipeline to Turkey and then shipping gas overland to Greece and on to the rest of Europe – it doesn’t mean it’s do svidaniya. “I don’t believe South Stream is dead, it just may not be built the way it was planned” said Andreas Goldthau, a researcher at Harvard University’s Belfer Center for Science and International Affairs. “It may still wind up transporting Russian gas to Europe through a country other than Ukraine.” And if you’ve seen that exhibition of Herculean paintings inspired by the Russian president – particularly one that depicts a bare chested and muscular Putin holding up the heavens, just as Hercules once did for Atlas – then you’ll know he’s not going to give up without a fight.