Russian President Vladimir Putin announced during a visit to Turkey on Monday that the Kremlin is scrapping its $10-billion South Stream pipeline project that would have bypassed Ukraine to bring natural gas to Southern Europe.
Putin blamed European Union anti-monopoly policies for derailing the project that energy behemoth Gazprom was building to better guarantee delivery to Western European customers.
The Kremlin leader pledged during a joint news conference with Turkish President Recep Tayyip Erdogan that Russia would significantly boost collaboration with Turkey on energy projects and said Russia in general was working to "redirect" gas deliveries to more cooperative partners.
Russian economic ties with Western Europe have been hit by sanctions imposed to punish Moscow's aggression against Ukraine, where Russia-backed separatists have been at war with government troops for nearly eight months. Russia pumps half of the natural gas it sells to European customers via pipelines that run across Ukraine, which has twice in the last five years retaliated against price disputes by blocking or reducing Russia's deliveries to the West.
In May, Russia and China signed a landmark energy deal that will provide the booming Chinese economy with the fuels it needs to continue its expansion for the next 30 years.
The South Stream pipeline was to carry natural gas from Russia under the Black Sea to a terminal in Bulgaria from which it could be sent to consumers in Southern and Central Europe, including Hungary, Serbia, Slovenia and Austria, the Tass news agency reported.
Putin proposed instead to collaborate with Turkish contractors to create a new energy transportation hub on the border with Greece to better serve Southern Europeans.
Russia and Turkey have starkly conflicting positions on the war in Syria, where Moscow is President Bashar Assad's most powerful ally and Ankara backs the rebels who have been fighting for more than three years to oust the authoritarian ruler.
But Putin and Erdogan sidestepped their opposing views on Syria to present their meeting as a success in expanding trade and economic cooperation. Russia and Turkey currently have annual trade of $33 billion and hope to triple that over the next decade, the leaders said.
South Stream's undersea construction had been delayed by a dispute over whether the project needs to comply with European Commission rules requiring separation of energy generation and sales operations from transmission networks. The new policy was adopted after the South Stream contract was signed by Russia and European clients, but the commission last year said it was reviewing the deal for compliance with the anti-monopoly objectives.
European Union member Bulgaria had yet to give its final authorization for construction on its territory, which Putin blamed for forcing Moscow to abandon the project after spending half of its budget.
"We cannot start the construction in the sea until we have Bulgaria’s permission to begin construction in the sea. It would be absurd to reach the Bulgarian coast and to stop then," Putin said at the news conference in Ankara, according to Russia's Sputnik news agency.
The Russian leader took a "suit yourself" posture toward the Western European alliance he accuses of having imposed new restrictions after the deal was reached in 2012.
"We think that this is not correspondent with Europe's economic interests and causes damage to our cooperation," Putin said. "But this is the choice of our European friends."
Gazprom Chief Executive Alexei Miller was among the industry kingpins and government ministers accompanying Putin on his Turkish visit. Miller said Gazprom had signed a memorandum of understanding with Turkey on construction of a new pipeline under the Black Sea to Turkey, which is not an EU member, that could carry about 63 billion cubic meters of gas a year, about the same capacity as planned for South Stream.
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