Serbian, Russian pipeline accord enhances European gas security
Energy agreements reached earlier in 2008 between Serbia and Russia enhance the security of European natural gas supply, despite perceived competition between the South Stream pipeline (included in these agreements) and the Nabucco pipeline. This article offers an overview of the context of these agreements.
Background
On Sept. 9, 2008, Serbia’s parliament ratified two documents—the Stabilization and Association Agreement (SAA) with the EU and an energy agreement with Russia. Natural gas is the fastest growing primary energy source in Serbia. The oil and gas agreement with Russia changes Serbia from being a purely importing country to a transit country for Russian gas. Russia moves 124.4 billion cu m/year (about 4.4 tcf/year) of natural gas to the EU.1
The South Stream pipeline (Fig. 1), with a planned capacity of 30 billion cu m/year starting in 2013, will transport one quarter of the entire export of Russian natural gas to the EU, with the planned branch through Serbia carrying 10-18 billion cu m/year of this total (OGJ, May 3, 2008, p. 31). Serbia expects to earn roughly $200 million/year from transit taxes.
Serbia expects natural gas to become the primary substitute for electricity-based heating through both distribution grids in densely populated areas and individual boilers in the rest of the country. The country wants private investors to steer the expansion of its gas distribution networks, which it recognizes as important to both its energy and environmental programs.
Environmental concerns have prevented broad use of domestic coal in district heating systems, combining with the need to provide heat as efficiently as possible to lead Serbia to expanded use of natural gas.2
South Stream
Italian ENI and Russian Gazprom signed a memorandum of understanding regarding construction of the South Stream pipeline June 23, 2007. The line will run from Russia across the bottom of the Black Sea to Bulgaria, splitting there with one arm heading westward via Greece to Italy and another arm flowing northward to Serbia with possible continuation into Central Europe.
From Varna, Bulgaria, the southwestern route will continue through Greece, crossing the Ionian Sea to southern Italy. The northwestern pipeline will run through Serbia, Hungary, and Slovenia to Austria, ending at Baumgarten gas storage. Another option would run the northwestern route through Slovenia to northern Italy instead.
Russia and Bulgaria signed the agreement governing Bulgaria’s participation in the project Jan. 18, 2008. Before Serbia joined Russia in South Stream, Gazprom and Serbia’s state-owned gas company Srbijagas (Serbian Gas Co.) agreed to study building a gas pipeline from Bulgaria through Serbia. By Feb. 25, 2008, the two companies had formed a joint venture to build the Serbian section of the South Stream and a large gas storage facility near Banatski Dvor, Serbia.
Russia and Hungary agreed to set up an equally owned joint company to build and operate the Hungarian section of the pipeline on the same day. Hungary is a shareholder in the EU-backed Nabucco pipeline, aimed at bringing gas from Central Asia to Europe while bypassing Russia. Its agreement with Russia on South Stream prompted US concerns Budapest may sideline the EU project, aimed at reducing Europe’s energy reliance on Moscow.
Russia and Greece signed an intergovernmental agreement covering construction and operation of the Greek section of South Stream on Apr. 29, 2008.
Russia’s agreement with Serbia provided Gazprom with extremely favorable terms for work in Serbia, while also providing great opportunities to Serbia. Gazprom may acquire state NIS (Serbian Oil Co.) at low cost and received incentives regarding construction of the South Stream gas pipeline, while Serbia heightened the long-term security of its energy supplies.
South Stream would set back the energy security objectives of the European Union and the US on two major counts:
- It would preempt markets targeted by the Nabucco project, cementing a Russian monopoly on some of them and breaking into new ones, while increasing overall European dependence on Russian-delivered gas.
- It would carry gas from Central Asia via Russia, preempting Turkmen and other gas volumes and strengthening Russia’s monopoly on Central Asian gas, despite Western intentions to the contrary.
Serbia
Russia is trying to capture Serbia’s entire energy sector at once. The Russian government and Gazprom propose three Russian-controlled joint companies—one for oil and two for gas—inside Serbia, with ramifications stretching into the Republic of Srpska in Bosnia and Herzegovina.
Another document still awaiting ratification is sale of 51% in the Serbian national oil company to Russian Gazpromneft for €400 million (OGJ, Jan. 28, 2008, p. 5). Even after ratification, however, Serbian oil and gas fields (Fig. 2) will remain Serbian property. The ratification was initially scheduled for May, but internal Serbian political problems have repeatedly postponed ratification.
EU gas demand will rise to roughly 800 billion cu m/year by 2030 from current levels of 540 billion cu m/year.3
With more than 50% of European gas imports originating from Russia, some EU members have expressed fears the Kremlin could use energy resources as a foreign policy tool. Despite widely discussed transit friction between Gazprom and the Ukraine and Belarus, however, sufficient export transportation capacity to Europe should not pose a problem for the next decade.
Russia’s energy strategy through 2020 estimates total exports to Europe by 2015 as somewhat lower than 160 billion cu m/year.4 Already existing export pipelines through Ukraine and the Yamal-Europe corridor through Belarus can carry 168 billion cu m/year of Russian gas to Europe.4 A partial overlap of South Stream and Nabucco does not, therefore, create a redundancy or possible oversupply but actually improves Europe’s security of supply.
References
- British Petroleum, Statistical Review of World Energy 2008, http://www.bp.com, London, 2004.
- Brkic, D., and Tanaskovic, T., “Systematic Approach to Natural Gas Usage for Domestic Heating in Urban Areas,” Energy, Vol. 33 (2008), pp. 1,738-753.
- Goldthau, A., “Rhetoric versus reality: Russian threats to European energy supply,” Energy Policy, Vol. 36 (2008), pp. 686-692. Sagen, E.L., and Tsygankova, M., “Russian natural gas exports—Will Russian gas price reforms improve the European security of supply?” Energy Policy, Vol. 36 (2008), pp. 867-880.
The author
Dejan Brkic ([email protected]) is a PhD candidate at the University of Belgrade, school of mining and geology, Serbia, with his PhD research supported by the Ministry of Science and Technological Development of the Republic of Serbia. He holds an MS (2002) in petroleum engineering and an MS (2005) in the treatment and transport of fluids, both from the school of mining and geology. Brkic also has postgraduate education in environmental protection. His research interests includes design of natural gas distribution networks and implementation of natural gas heating systems in urban areas.