Sunday, January 20, 2008

Russia defeats EU for new gas pipeline

Source: Russia trumps EU with new oil deal

In a deal signed Friday, Bulgaria and Russia reached an agreement to build a natural gas pipeline (South Stream) that will cross from Russia under the Black Sea to Bulgaria and then branch off to allow for delivery deeper in Europe. This agreement undercut a rival project (Nabucco) supported by the U.S. and the European Union.

The agreement required a great deal of concentrated negotiations on the part of Putin, who had to overcome Bulgaria’s wariness that the agreement gave Russia a disadvantageous influence. Russia initially insisted on a 51 percent stake in the project, but agreed to an equal sharing at the last minute to preserve the project.

Late this week it was not completely clear who Bulgaria would select. In a speech on Thursday, Bulgarian President Georgi Parvanov stated that his nation supported the EU’s efforts to diversify energy supply routes via Nabucco. After Parvanov’s speech, Putin, visibly annoyed, announced that Bulgaria was free to choose its direction but warned that is should make the decision which “works to its benefit.”

Gazprom, Russia’s state-controlled gas monopoly, set up a joint venture with Italy’s ENI SpA to develop a feasibility study for the 900 kilometer (550 mile), $10 billion pipeline. This pipeline is a direct rival to the Nabucco pipeline endorsed by the U.S. and the EU. Although ENI CEO Paolo Scaroni attempted to minimize the rivalry between South Stream and Nabucco, asserting that demand could necessitate both projects, it appears that Bulgaria took advantage of the clashing pipeline offers, choosing to side with Russia as opposed to the U.S. and EU. It is not clear if both projects will proceed, or if Nabucco will be abandoned.

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