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Russian gas pipeline to Europe to begin construction

23rd July 2012

Gazprom and Eni plan to start construction of the South Stream gas pipeline in December

Russian gas pipeline to Europe to begin construction
The South Stream pipeline is expected to export 63 billion cubic meters of gas to southern Europe

A Russian gas giant and an Italian O&G major plan to start construction of the South Stream gas pipeline in late 2012.

The world’s largest holder of gas reserves, Russia’s Gazprom and Italy’s oil and gas firm Eni aim to start building the South Stream gas pipeline in December, the Kremlin announced on Sunday.
The 900 km long and over 2 km deep South Stream (above, blue line) will carry Russian gas to southern Europe through the Black Sea.

Gazprom and Eni own a 50 per cent and 20 per cent stake in the USD 18.25bn project, respectively, while Germany’s Wintershall and France’s EDF each own 15 per cent. Russia is expected to provide around half of the funds required to put the project on wheels.

The first gas is expected to be pumped through the pipeline in 2015, and export some 63 billion cubic meters to southern Europe. Gazprom caters to 40 per cent of the European Union’s energy needs and exported an estimated 150 billion cubic meters of gas to the region in 2011. Europe’s dependence on gas is expected to increase in the next thirty years. The UK is estimated to import 50-80% of its gas needs by 2020 according to The Oxford Institute for Energy Studies.

“Europe will need an ever more pervasive network of gas transmission facilities to satisfy the growing energy demand,” a spokesperson for Gazprom Group’s Information Directorate told OGT.

“South Stream will contribute considerably to satisfying this need. It will provide a direct link between hydrocarbon suppliers and consumers, ensure delivery of extra gas volumes and make an invaluable contribution to enhancing European energy security.”

“Two optional routes are currently being considered,” Gazprom Group added. “The northwestern route runs towards Slovenia and Austria via Bulgaria, Serbia and Hungary and the southwestern route – to Greece and Italy. Gas laterals will be diverted from the main route of the South Stream onshore section in Europe to Croatia and Macedonia.”

Russian president Vladimir Putin will convene with Italian prime minister Mario Monti on Monday to discuss energy cooperation.

Construction was initially scheduled to start in 2013 but was pushed forward to late 2012. Turkey has given its permission for the gas pipeline to be built under its waters in the Black Sea.

The move will allow Russia to bypass the Ukraine, where several gas disputes over prices and supplies have mired dealings between Gazprom and Ukranian O&G firm Naftogaz Ukrainy since 2005.

Gazprom is currently struggling with fierce competition which has emerged within the gas sector. Major shale gas finds in the US and Mozambique  have forced it to lower contract prices in order to stay competitive and have also allowed Europe to contemplate lowering its dependence on Russian gas.

“The question is whether the parties – and particularly the European parties - will indeed be ready to take FID on South Stream in November,” Professor Jonathan Stern, chairman and senior research fellow  at The Oxford Institute for Energy Studies told OGT. “Even if they decide to go ahead, South Stream will not reach full volumes until 2020,” he added.

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