South Stream construction is fully agreed

Gazprom has totally agreed the construction of the South Stream gas pipeline from Russia to Europe via the bottom of the Black Sea. The final investment decision with the key country for the project – Bulgaria – where the gas pipeline is to reach the surface was made yesterday in exchange for the significant discount for the Russian gas. Gazprom agreed to set for Sofia one of the lowest export prices aiming for meeting the terms promised a year ago to V. Putin. Within that time the price of the gas pipeline has risen to €16.6 bln, and taking into account the necessary for the project expansion of the Russian gas supply system it might reach €27 bln.

Yesterday the head of Gazprom, A. Miller, and the CEO of Bulgarian Energy Holding, M. Andonov, at the presence of the Prime Minister of Bulgaria, B. Borisov, signed the final investment decision on the construction of the Bulgarian site of the South Stream. In exchange Bulgaria was granted a discount for gas from Gazprom and agreed to purchase it directly from the monopoly. “Within a few recent years we have lost millions via intermediaries (earlier the supplies were held via the JV of Gazprom with the local business Overgas). We were granted a 20% discount for gas from Jan 1^st 2013 and sign the agreement for 10 years”, B. Borisov said. A. Miller confirmed the gas price for Bulgaria from 2013 will be one of the lowest. The country plans to purchase about 2.9 bln cubic meters of gas a year, but will be able to reduce the collection by 20%. “We have done it, and I would like to say it was done due to the strategic partnership in the gas sector”, the head of Gazprom said.

Bulgaria is the last of the transit countries Gazprom had to agree on the construction of the South Stream with. The main branch of it is to go from Anapa via the bottom of the Black Sea via the waters of Turkey, reach Bulgaria and then Serbia, Hungary and Slovenia – to the Italian town Tarvisio.  Gazprom has managed to agree with the rest transit countries of the land area within the last 3 weeks. On Wednesday the Board of  South Stream Transport AG (Gazprom – 51%, Eni -20%, Wintershall -15%, EdF-15%) made the final investment decision by the sea part and approved the company’s change of registration in Amsterdam (earlier the operator was the resident of Switzerland). Turkey allowed to construct the pipe in its waters on December 28^th 2011.

The idea of the South Stream construction for the Russian gas supply to Europe by the southern route appeared in the autumn 2005. Initially the project of the construction of the Blue Stream 2 to Turkey with the continuation to Italy was discussed, however, in late June 2006 Gazprom and Eni signed an agreement on the construction of the South Stream with reaching the surface in Bulgaria. Since that the project’s discussion was quite slow but in late December 2011 V. Putin officially ordered Gazprom to sharply accelerate the project. In Jan 2012 A. Miller promised to start the construction of the underwater site in December. Now the exact date is known – December 7^th. The launch of the first branch with the capacity of 15.5 bln cubic meters of gas is planned for the end of 2015, start of supplies – for Q1 2016. In total 4 branches with the total capacity of 63 bln cubic meters are planned. It is supposed to reach this volume in 2018. The offsets to Croatia, Macedonia and Serbia are planned.

However, the project is quickly rising in price. A month ago Gazprom assessed the total construction of the gas pipeline at €15.5 bln. Last week on the results of the researches, project works, concretization of the route and its configuration the price rose to €16 bln, €6 bln of which – is for the land area. In the process of signing the agreement Slovenia assessed its site (265 km) at €1 bln, Hungary (230 km) at €600 mln, Serbia (470 km) at €1.7 bln, Bulgaria (540 km) at €3.3 bln, which in total makes up €6.6 bln. Gazprom doesn’t hide all the assessment are preliminary and the final cost of the pipeline will be known in 2013. V. Nesterov from  Sberbank Investment Research adds that Gazprom will have to spend about €10 bln for the expansion of the single system of gas supply in Russia to reach Anapa (from there the sea part of the South Stream starts) to provide the possibly of pumping the necessary gas volume for the supplies by the gas pipeline.

http://www.kommersant.ru/doc/2067805

Translated by Galiya Musabekova