0

Some analysts and European officials have already expressed fears that South Stream will only increase the dependence of the EU countries on Russian energy supplies. Nevertheless, with domestic energy sources dwindling and the instability in the Middle East, there seems to be no way around importing energy from Russia. The EU is dependent on the country for about a quarter of its gas and oil. Conversely, sales of raw materials to the EU provide most of Russia's foreign currency and are an important revenue source for the Russian budget.

The Russians are coming

The South Stream pipeline is a joint project of Russia's state-owned energy giant Gazprom and the Italian Eni. The pipeline is to enter into service in 2013 and is expected to be worth between EUR 7 bn and EUR 10 bn. The pipeline will bring gas from Siberia and Central Asia to the northern shores of Adriatic, running under the Black Sea from Russia to the Bulgarian port of Varna and then on to Romania, Hungary, Slovenia and finally Italy.

As in other countries hosting their part of the South Stream pipeline, Gazprom will enter into a joint venture with Slovenian companies that will take part in the financing, building and operating the Slovenian section of the pipeline. Media reports say that Petrol, a fuel retailer and one of Slovenia's biggest companies by revenue, will lead the consortium of companies that will enter into the joint venture with the Russians.

In negotiations with its partners in other countries, Gazprom succeeded in pushing through its demands to have a 51 percent share in the joint ventures. In Slovenia, however, unofficial sources say that Gazprom and the Slovenian consortium could split the ownership of the joint company in two equal halves. The question of who will sell the gas destined for the Slovenian energy market remains open.

A buyer's market?

The share of natural gas in Slovenia's primary energy consumption hovers around 14 percent. Geoplin, the only wholesale gas retailer in Slovenia, imports all the gas it sells: 55 percent from Russia, 35 percent from Algeria and an additional 10 percent from Austria. Because gas consumption is expected to rise, especially as investment in gas fired plants is being considered, the issue of additional supplies has forced itself on the agenda.

It seems that Slovenian gas distributors will have at least two supply sources to choose from. The Nabucco gas pipeline, a project sponsored by the European Commission, will come on line in 2012. The pipeline will be fed Azerbaijani and Turkmenistani gas which will then flow through Turkey, Bulgaria and Hungary to Austria. Slovenian authorities have been weighing the option of connecting directly to the Hungarian portion of the Nabucco pipeline. That would dispense with the need to import the gas from Baumgarten gas terminal in Austria.

The other possible supply source is the South Stream itself. Analysts expect that of the 30 bn cubic meters of gas that will flow through the pipeline, only a half will arrive to Italy. The rest will be diverted into gas distribution systems of countries taking part in the project.

Alojz Stana, the director of Geoplin, expects that Nabucco, which is viewed as a rival to Russian gas, could take more time to launch, as the gas sources involved still have to be established and managed. The South Stream, in contrast, would allow Slovenia to tap into its exceptional geographical position by hosting the pipeline. He stressed that the country might have to wait 30 years or more for a similar energy project to come along, as energy investments tend to happen far less frequently than in other sectors.

Working together

The South Stream affair is not the first time Slovenian and Russian energy companies have considered working together. A year ago, Petrol and Lukoil, the biggest Russian oil company, were engaged in talks about the merger of their respective fuel retail businesses. Lukoil has strong presence on the Western Balkans markets, a region that figures prominently in Petrol's expansion plans. The talks failed, but have since then been revived. Observers say that one of the reasons might be a significant fall in Petrol's share price, making the company a more appealing target.

Furthermore, Slovenia and Russia last year signed an agreement on the settlement of Russia's US$ 129m clearing debt, and even more importantly, trade is expected to exceed US$ 2bn by the end of the year. It seems that all is well on the Eastern front.