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South Stream pipeline construction fully coordinated

November 16, 2012, 11:44 UTC+3

Final investment decision with Bulgaria, a key country for the project where the gas pipeline is to reach land, was concluded

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Gazprom has completed all the coordination procedures on the South Stream gas pipeline construction from Russia to Europe on the Black Sea bottom. The final investment decision with Bulgaria, a key country for the project where the gas pipeline is to reach land, was concluded on Thursday in exchange for a considerable discount on Russian gas. Gazprom agreed to offer Sofia one of the lowest export prices, seeking to meet the deadlines promised a year ago to Vladimir Putin. However, over this period the gas pipeline cost increased to 16.6 billion euro, and with taking into account the expansion of the Russian gas supply system needed for the project it may reach 27 billion euro.

On Thursday, Chairman of the Gazprom Management Committee Alexei Miller and Director-General of Bulgarian Energy Mikhail Andonov in the presence of Bulgarian Prime Minister Boyko Borisov signed the final investment decision (FID) on the construction of the Bulgarian section of the South Stream gas pipeline, the Kommersant daily reports. In exchange, Bulgaria got from Gazprom a gas price discount and agreed to purchase it from the monopoly directly.

Bulgaria is the last of the transit countries with which Gazprom needed to reach an agreement for the launch of the building of the South Stream pipeline, the main branch of which is to stretch from Anapa on the Black Sea bottom via Turkish waters, to reach land in Bulgaria and go further via Serbia, Hungary and Slovenia — to the Italian town of Tarvisio.

The publication notes that the project’s cost is growing quickly. A month ago, Gazprom assessed the total pipeline construction cost at 15.5 billion euro. Last week, the monopoly specified, as a result of “survey, project design work, specification of the route and its configuration” the cost increased to 16 billion euro, of which the ground section will cost 6 billion euro. Gazprom also does not hide that all the estimates are preliminary, and the final cost of the gas pipeline will become known only in 2013.

The Vedomosti newspaper published an article on this topic with the headline “Costly and Redundant.” According to head of the analytical department of Zerich Capital Management Nikolai Podlevskikh, quoted by the newspaper, with the existence of the Ukrainian gas transportation system the South Stream pipeline is redundant. And the real investment volume will exceed 20 billion euro, therefore the gas pipeline payback period, especially with its partial load, will be very long.

Analyst of Sberbank CIB Valery Nesterov warns that the construction of infrastructure facilities in Russia may increase the investment volume up to 27 billion euro.

“If the Nord Stream pipeline has a considerable independent significance, then South Stream should be generally regarded as bypassing Ukraine and other gas pumping routes,” the newspaper quotes Podlevskikh as saying. “But the construction of South Stream will definitely allow Russia to diversify the routes of supplies, which means it will give it as a minimum the possibility to lower the transit tariffs and make Ukraine more compliant at the negotiations on the purchase of a share in the gas transportation system from it.”









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