Caspian Report - Issue: 07 - Spring 2014

Aura Sabadus
36
The criticism has gained traction in
the light of the recent breakdown
in relations between Moscow and
Kiev, as Russia is expected to press
ahead with the construction of South
Stream as an alternative transit
route to that offered by Ukraine. In
this context, the physical deliverability
of the Southern Gas Corridor will
be tested on three accounts.
The first test surrounds the ability
of SGC to compete against South
Stream, pitted in a David versus Goliath
battle to capture EU markets.
The 10 bcm/year expected to reach
Southern Europe through TAP by
2019 has already been pledged under
long-term contracts signed between
the Shah Deniz partners and
the recipients of the gas.
However, any attempts by the Shah
Deniz partners to ramp up exports
once Azerbaijan increases its production
from the current 28 bcm/
year to 55 bcm/year by 2020 may
be stymied by the deluge of Russian
gas reaching central and South Eastern
Europe within a few years, saturating
a region that already has low
demand for the fuel. South Stream is
designed to transport gas to Italy via
Bulgaria, Serbia, Hungary and possibly
Austria. It also aims to reach
Western Balkan countries such as
Croatia and Slovenia.
The second question refers to the
battle for the control of infrastructure
assets along the route. Cohen
points out that in 2007-2008, Moscow
completed acquisitions of pipelines
and storage facilities in Bulgaria,
Serbia, Hungary and Austria
in preparation for the rollout of the
South Stream project. 10 Last year,
Russia’s Gazprom and its Russian
proxy, Sintez, attempted to purchase
both the Greek incumbent DEPA and
its subsidiary, the transmission system
operator DESFA. The combined
takeover would have given Russia
control over Greece’s infrastructure
and market. However, Russia pulled
out of the tenders amid warnings
that the takeover would contravene
EU competition laws. In December
last year, Azerbaijan’s incumbent SO-
CAR, and one of the main partners in
the SGC, was awarded a 66% share
of DESFA.
Russia already has an overwhelming
grip on Europe’s pipelines, either
through the legacy of the Soviet
energy grid that placed central and
Eastern European countries under
the control of Moscow in a manner
that remains difficult to alter, 11 or
through the purchase of cheap assets
in the energy sectors of these
states immediately after the collapse
of communism.
The third question refers to the degree
of flexibility and penetration
that the Southern Gas Corridor will
have in markets adjoining its route.
South Stream proposes building
spurs alongside the trunk line to
feed the smaller western Balkan
10.
Cohen, A., (2009), p. 94, “Russia: The Flawed Energy Superpower” in Energy Security Challenges
for the 21st Century: A Reference Handbook, ed. Gal Luft and Anne Korin (Greenwood Publishing
Group: Santa Barbara, California)
11.
Jaffe, A.M, Soligo, R., (2009), p. 122 “Energy Security: The Russian Connection,” in Energy Security
and Global Politics, ed. Daniel Moran and James A. Russell (Routlege, London)