BRATISLAVA Approval of Russia's South Stream pipeline would send a message to Ukraine that the European Union is not ready to support its ambitions to lean toward the West and does not see it as a reliable gas transporter, the head of Slovakia's pipeline operator said.
The roughly $40 billion South Stream project is designed to carry over 60 billion cubic meters (bcm) of gas each year across the Black Sea into southern Europe, bypassing Ukraine, which now collects fees for transporting gas through massive pipelines from its Russian border to Europe.
The European Union has so far blocked the project, citing competition rules. But Russia is working with several EU member states, such as Bulgaria and Austria, to comply with the EU rule that the pipeline provide access to other gas producers.
"Potential support of South Stream, especially in its full scale, is not a positive support of our Russian partner, but in fact a completely hostile action against Ukraine," Eustream Chairman Tomas Marecek told Reuters.
"I do not understand how the EU could support this, especially now in the context of the current Ukrainian ambitions, needs and hopes."
South Stream would deprive Ukraine of revenue from Gazprom (GAZP.MM) that helps it cover its gas bill from Russia's state-controlled gas exporter.
"This would first greatly harm Ukraine. It would incur enormous financial losses, destroy the value of their gas assets, which are one of the backbones of their economy, and heavily undermine their ambition to be supplied also from the West," Marecek said.
Slovakia's Eustream carries gas from Ukraine to various regional EU pipelines. If South Stream is built, Eustream would lose some gas volume and some revenue after the expiration of a long-term contract with Gazprom in 2028.
The new route entering the European Union in Bulgaria and ending in Austria would also sap revenue, but under such a scenario Eustream's underutilized pipelines would probably send large amounts of gas eastward, especially to Ukraine.
South Stream would give Russia full control of the three main routes that would feed gas into Europe, via the northern route of the Nord Stream and Yamal pipelines, the central route via Ukraine and into Slovakia as well as the southern route through South Stream.
"It would effectively reduce the energy security of Europe as the huge Ukrainian system, with capacity to transmit to Europe 140 bcm, would be replaced by the much smaller system of South Stream," Marecek said.
Marecek said Russia has long been a reliable supplier to Europe and would remain so in coming years.
"I stress I am a great defender of supplies of Russian gas to Europe, and I am convinced that Gazprom is and will be a reliable supplier as it has been for last more than 40 years," he said.
No objection to South Stream would be needed if the project represented an additional transit route that didn't replace the Ukrainian system and was justified by demand for new gas in Europe, he added.
Russia has strengthened its resolve to build South Stream, despite Europe's falling gas demand, after price disputes with Ukraine have sparked three shutdowns since 2006.
The latest dispute over pricing and money owed has led it to halt deliveries to Ukraine since mid-June.
In this latest shutdown, Eustream has played a major role in helping Ukraine make up for the gas supplies ahead of winter.
Slovakia opened an unused pipeline in September with 10 bcm of annual capacity to send gas from the European Union to Ukraine.
"We are running this capacity close to 100 percent, and we don't expect reductions this winter like in Poland or Hungary as the volumes of gas in our systems are clearly exceeding the reverse flow capacity," Marecek said.
"Also we are analyzing suggestions of (Ukraine pipeline operator) Ukrtransgas to increase the capacity of Vojany reverse to a higher volume," he added.
Poland interrupted supplies to Ukraine in September after receiving less than the amount it requested from Russia, while Hungary halted eastward deliveries a day after securing a new deal with Gazprom last month.
Meanwhile, Russia's and Ukraine's energy ministers are meeting on Tuesday in Brussels. The two sides have reached a tentative agreement in the gas row, which includes the supply of 5 bcm of Russian gas to Ukraine by end-March.
That supply plus Ukraine's other sources including from Eustream should give it enough to get through the winter.
(Editing by Henning Gloystein and Jane Baird)