Austria gave its final approval to a controversial Russian gas pipeline project on Tuesday, defying EU officials as Russian President Vladimir Putin visited the neutral country that has been a long-standing energy customer for Moscow.
The chief executives of Russia's Gazprom and Austria's OMV sealed the deal to build a branch of the South Stream gas pipeline to Austria, a staunch defender of the project in the face of opposition from the European Commission.
South Stream, which will cost an estimated $40 billion, is designed to carry Russian gas to the center of Europe, a continent already dependent on Russia for a third of its gas needs, on a route that bypasses current transit country Ukraine.
The Commission says South Stream as it stands does not comply with EU competition law because it offers no access to third parties. South Stream also counters the EU's policy of diversifying supply sources to reduce dependence on Russia.
But OMV CEO Gerhard Roiss told a news conference after the signing: “Europe needs Russian gas. Europe will need more Russian gas in future because European gas production is falling ... I think the European Union understands this, too.”
He said the Austrian part of the pipeline, which is planned to be built in 2016 and deliver its first gas supplies at the start of 2017, would comply fully with European law.
Gazprom chief Alexei Miller said he was in weekly if not daily contact with European Energy Commissioner Guenther Oettinger about the project.
“We solve problems as they come up, and now the problem of construction of the pipeline is to be solved,” Miller said.
The pipeline deal does not address the question of third-party access, which is required by EU law to prevent the owner of an energy source from monopolizing its distribution channels. Roiss said the issue must be negotiated with Brussels.
Gazprom and OMV said they would share equally the 200 million euro ($272 million) costs of building the 50-km (31- mile) Austrian stretch of South Stream, which in total will be 2,446 km long.
The route travels across Russia, under the Black Sea and then through Bulgaria, Serbia, Hungary and Slovenia to Austria. Another branch may be built to Italy.
Gazprom's partners for the offshore part of the project are Italy's ENI, Germany's Wintershall Holding and France's EDF.
Divide and rule?
The ceremony took place as Putin jetted in to the Austrian capital for a one-day working visit, only his second to an EU country since Russia annexed Crimea in a violent standoff with Ukraine in March.
The confrontation showed signs of easing on Tuesday when Putin asked Russia's upper house to revoke the right it had granted him to order a military intervention in Ukraine in defense of Russian-speakers there.
Russia-Ukraine disputes have caused supply disruptions for Europe in the past as Russia has turned off gas to Ukraine.
Miller said Gazprom could mitigate such outages in the short term by delivering more gas via its Nord Stream pipeline to Germany, and by filling up European gas storage facilities.
The project has pitted European industry against politicians in Brussels, and divided South Stream supporters - which stretch from Germany through the heavily Russia-dependent central and southeastern Europe - from other EU member states.
The EU has said it has no criticism of Austria's hosting Putin despite frosty ties with Moscow. He visited France for World War Two commemorations this month.
But some politicians have warned that Putin may try to exploit divisions between friendly EU states, such as neutral Austria with its traditionally good ties to Moscow, and those like Britain that want to take a harder line.
“Obviously ... Putin wants to split the European Union. That's nothing new. That's what the Russians always try to do when they are in a corner,” Swedish Foreign Minister Carl Bildt told Austrian broadcaster ORF on Monday.
Austrian President Heinz Fischer, who will meet Putin, has defended the trip as a chance to keep open lines of communication with the Kremlin.