South Stream is Russian energy giant Gazprom's global infrastructure project designed to build a gas pipeline with a capacity of 63 billion cubic meters across the Black Sea to Southern and Central Europe in order to diversify natural gas export routes and eliminate transit risks.
The construction of the South Stream pipeline started in late 2012. Under the project, the first deliveries are due in 2016 and the pipeline is expected to become fully operational in 2018.
Last year, the European Commission urged to review bilateral intergovernmental agreements between Russia and EU countries to ensure that they comply with the Third Energy Package, which requires the separation of gas production, transportation and sale to prevent gas suppliers from dominating the infrastructure.
Russia insists the South Stream project should be exempt from the effect of the Third Energy Package because it signed bilateral inter-governmental agreements with the EU countries participating in the construction of the gas pipeline on their territory before the EU’s new energy legislation came into force.
Therefore, Russia says that the European Commission’s requirement to adapt these documents to the Third Energy Package contradicts the basic law principle that legislation cannot have retroactive force.
Therefore, Russia does not recognize the legitimacy of applying the Third Energy Package to the South Stream gas pipeline project. If Moscow agrees to the EU’s proposal to consider exemptions for the South Stream gas pipeline as part of the Third Energy Package, this will mean that Russia will de facto recognize the legitimacy of using this ultra-liberal regulation.