Global Economics

Europe to Spend Billions on Gas Projects


To mitigate against future Russian-Ukrainian gas crises and as part of a broader recovery package, the EC will offer $3.1 billion in support for energy linkups

The European Commission approved financing on 4 March for 43 gas and electricity interconnection projects worth €2.3 billion as part of a bigger "recovery package" agreed last year in response to both the economic and the Russian-Ukrainian gas crisis.

The funding, which varies between €1 million to 200 million per project, comes with a series of caveats – mainly imposed by Germany last spring when it agreed to the deal after months of haggling. For instance, the money needs to be used over the next 18 months and it can only finance up to 50 percent of the total investment cost.

Energy commissioner Gunther Oettinger, himself a German politician, called the decision a "milestone" in EU history, since never before had the community invested so much in energy infrastructure. Apart from the gas and electricity projects already approved, the commission also agreed to fund wind farms and carbon capture and storage units worth €1.5 billion. That decision was taken in December last year, also as part of the "recovery package."

In concrete terms, the gas and electricity projects would help member states to be prepared in case of another energy cut off such as the one in January 2009 and 2006. Mr Oettinger gave the example of Bulgaria, which last year was left in the cold for weeks because there was no technical possibility to get gas supplies from its neighbours Romania and Greece when Russia turned off the tap. The pipelines linking Bulgaria to these two countries will be financed with €45 and €9 million, respectively, according to the project list.

The same goes for the Baltic states, whose energy infrastructure still reflects the Soviet Union architecture. They will no longer be "isolated islands" on the energy map, Mr Oettinger said, referring to electricity projects worth between €100 million and €130 million, linking Estonia to Finland and Latvia and Lithuania to Sweden.

A slightly more controversial envelope of €200 million will go to Nabucco, Europe's only pipeline project aimed at reducing its dependence on Russian gas and pipelines by bringing Caspian gas directly to the EU via Turkey.

Earlier this week, Mr Oettinger had signaled a u-turn in the commission's thinking when it comes to what is perceived as Nabucco's rival, South Stream, the Russian-sponsored pipeline set to tap the same Caspian resources.

Speaking at a Bulgarian forum, the commissioner said that the EU was ready to back South Stream as long as the project would meet all the "technical requirements to security."

On Thursday, the commissioner again said that Nabucco and South Stream were not rivals but "complementary" projects. He explained that South Stream, which would cross the Black Sea, along with its northern counterpart, Nord Stream, through the Baltic Sea, would reduce Europe's reliance on "one pipeline," as 80 percent of Russia's gas exports to the bloc currently transits Ukraine via an old Soviet network.

But he admitted that neither pipeline will lower Europe's dependence on Russian gas. In both projects, Russian gas monopoly Gazprom (OGZPY) would hold 51 percent of the shares.

Against this backdrop, the EU commission was "putting its trump card on the table" – the multi-million funding to Nabucco – in order to reduce Europe's dependance not only on a pipeline, but also on the same supplier, he argued.

Mr Oettinger did not rule out the possibility that the multi-national company responsible for Nabucco could decide this year to back out of the project altogether. The €7.9 billion scheme has advanced at a snail's pace since its inception in 2002.

"If the project comes into being, the €200 million will be an important building bloc, otherwise it will be used elsewhere," the German commissioner said, adding that Brussels was now preparing a conference on Nabucco.

Meanwhile, also on 4 March, the Turkish parliament ratified an intergovernmental deal signed last year between the five countries involved in Nabucco. The move is seen as another small step forward, because Ankara had been haggling for a long time on the transit conditions for the pipeline.

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