8 December 2012, 17:30

South Stream: the start

South Stream: the start

The construction of the South Stream gas pipeline has begun. The first pipe joint has been welded not far from the city of Anapa in the south of Russia.

The pipeline is to connect Russia and Bulgaria under the Black Sea and then to go further to Italy above ground. Just like Nord Stream, the new pipeline is to guarantee Europe’s energy security and close cooperation with Russia.

South Stream’s planned length is 925km. The project costs $8.5mln. Besides Russian Gazprom, among the stockholders are Italian Eni S.p.A., French EDF and German Wintershall Holding GmbH. 63bln cubic metres of gas a year will be passing along South Stream by 2018. Russian President Vladimir Putin attended the construction opening ceremony. He said that this large infrastructural project would be carried out in a very short time.

“Many European countries are participating in this project. Suffice it to say that at the first stage natural gas will be delivered to at least six countries, such as Bulgaria, Serbia, Hungary, Slovenia, Italy and Croatia. Large Western European partners from France, Germany and Italy are taking part in the construction of the pipeline. This project enjoys political support in all countries of the partnership. All intergovernmental agreements have been signed and all investment decisions have been made.”

Vladimir Putin also stressed that the partners would focus on the environmental factor because the EU lays great emphasis on environmental protection.

“I can assure the participants in the project that all economic standards will be observed. If I remember rightly, in the Nord Stream project there are about 1,000 sensors all along the pipeline. They send real-time information to a respective satellite system which distributes this information among all interested countries.”

Nord Stream which is the northern twin of South Stream has connected Russia with Germany under the Baltic Sea and it is already working at full capacity. Part of the new pipeline will run under the Black Sea and connect the Russian port of Jubga and Bulgarian Varna. From Varna the pipeline will follow to Serbia, Hungary, Slovenia and Italy. There are also plans to build branches to Macedonia, Bosnia and Herzegovina and Croatia. Thus, not only the leading European countries but also Balkan states will receive Russian natural gas directly, without intermediaries, President of the Union of Oil and Gas Industrialists of Russia Gennady Shmal says.

“South Stream is needed for providing Russian gas access to the southern part of Europe, to Bulgaria, Romania, Serbia and other countries. We are interested in the construction of this pipeline because we get normal exit and by-pass any transit countries. It is clear that transit should be paid for. In our case, however, we use part of the Turkish shelf and we’ll have to pay for that but this price is much lower than what we used to pay Ukraine.”

The only danger for a successful fulfilment of the project is the 3rd European Energy Package according to which one supplier is allowed to fill only 50% of a pipeline’s capacity. This hits the interests of Russian Gazprom which is building the second gas pipeline to Europe and is the largest stock-holder of both Nord Stream and South Stream. At the same time, Europeans have already announced their readiness to discuss this unfavourable mechanism with Russia. Chances are that Europe has finally realised that it will benefit by this project even more than Russia, analyst of the Sberbank KIB company Valery Nesterov says.

“Europeans are the first to benefit by our new pipelines in their region. These pipelines are additional routes for Russian gas deliveries. In spite of their political position, the South Stream project is very profitable to Europeans.”

In about 20 years Europe will not be able to survive without Russian gas. According to IAEA forecasts, gas production in Europe will drop by 50% and the demand for gas will remain on the same level. A couple of years ago experts spoke about the possibility to use alternative sources. For example, many European countries planned to follow the US in producing shale gas. However, this initiative failed everywhere except Poland. As a result, Russian gas pipelines Nord Stream and South Stream remain the most stable energy prospects for Europe.

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