Despite expanded EU sanctions against Russian officials, Austrianoil and gas company OMVand Russian gas monopoly RussianGazprom signed in Moscow on 29 April amemorandum of understandingto build the Austrian section of the South Stream gas pipeline.
The Memorandum, which was signed at Gazprom’s headquartersat a working meeting between Gazprom CEOAlexey MillerandOMVChairman Gerhard Roiss, allows for as much as 32 billion cubic metres of gas a year to be delivered to Austria’s gas hub Baumgarten, OMV said in a statement.
The Austrian oil and gas company said it expects to have obtained all the permits necessary for the construction of the pipeline by end-2015.
First gas deliveries are expected in 2017 and the full commissioning of the Austrian section of the gas pipeline has been scheduled by January 2018, OMV said. Austria’s South Stream section will reportedly be jointly owned by Gazprom and OMV.
Under the agreement, the Austrian section of South Stream will run from the Bulgarian Black Sea coast to Baumgarten, crossing Serbia and Hungary on its way.
“The need for construction and the benefits of South Stream Project for Europe are patent. South Stream Project is aimed at enhancing energy security of the European consumers, which has always been regarded as the top priority for Gazprom.It is noteworthy that GazpromandOMVhave already established a solid international law basis for the implementation of this project – an intergovernmentalagreement between Russia and Austria signed in April 2010,” Millersaid after the meeting.
For his part, Roissnoted that the Memorandum was an important step towards boosting the security of gas supply in Austria, adding that it would further strengthen Baumgarten's role as key hub for gas in Central and Eastern Europe.
Europe imports about 30% of its gas from Russia, and half that amount flows through Ukrainian pipelines. South Stream would bypass Ukraine, lowering transit dependence on the former Soviet republic, which currently carries about 15% of Europe’s gas through its pipes from Russia.
On 28 April, Ukrainian Prime Minister Arseniy Yatsenyuk said his government started legal proceedings against Gazprom.
Russian President Vladimir Putin warned EU heads of state earlier last month the region’s energy security was at risk because of Ukraine’s mounting gas debts. The Russian Energy Ministry reportedly said members of the EU will join Ukrainian and Russian delegates at the negotiating table for energy talks at the beginning of May.
Meanwhile, Brussels and Washington have said they may impose sanctions on Russian industries, including banking and energy, if Putinescalates the situation by sending troops to eastern Ukraine. Neither Gazprom nor Miller are on the sanctions list so far.
On 28 April, Austrian Chancellor Werner Faymann called sanctions “overrated”.
Putin “May” Strike Back
Putin has threatened to strike back against US and EU sanctions, possibly targeting energy companies that seek access to Russia’s oil and gas reserves.
“The Russian government has already proposed some retaliatory steps,” Putin said at a Supreme Eurasian Economic Council summit in Minsk. “I consider these not necessary. But if something like this continues, then of course we will have to consider who’s working and how in the Russian Federation, in the key sectors of the Russian economy, including energy.”
International oil producers from Exxon Mobil to Royal Dutch Shell have major stakes in Russia. Shell owns 27.5% of the Sakhalin-2 oil and gas-export complex off Russia’s Pacific Coast. It also owns 50% of a group of Siberian oilfields known as Salym.
France’s Total has a 40% stake in the Kharyaga field and 17% ownership ofindependent Russian gas company Novatek.
Slava Smolyaninov, chief strategist at UralSib Financial Corp in Moscow, toldNew Europe on 30 April that “it looks like finally Putin has decided to explicitly say that he is unhappy about the sanctions and the sanctions are no good for the Russian economy”. “Finally, he showed how he could retaliate, how Russia could retaliate and obviously energy is the biggest part with BP and Exxon – I guess Exxon he meant more than anything else,” Smolyaninov said.
Rosneft PresidentIgor Sechin, who is on the US sanctions list but his company isn’t, said taking advantage of the resource potential in the Russian arctic is one of the top priorities for the Russian oil company.
The board of directors at Rosneft said on 28 April they were ready to start working in the arctic waters of Russia through a joint effort with US energy company Exxon Mobil.
“Monetization of Russia’s enormous resource potential in the offshore arctic is the key priority for the company,” Sechin said in astatementon 30 April.
Rosneft in 2012 started seismic surveys of the Kara Sea in order to get a better understanding of the reserve potential.
Experts note that Russian companies, including Gazprom and Russian state oil giant Rosneft, need foreign expertise to develop more demanding fields that require state of the art technology.
Smolyaninov said that if the sanctions are not expanded that would be business as usual between Exxon and Rosneft who share common business interests.
“It depends on the position of Putin and Russia what it does to Eastern Ukraine and I believe the May holidays that are coming - the Victory Day, the First of May will show how the situation will evolve over the next several weeks,” the UralSib chief strategist said.