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Analysis & Opinion

South Stream's Russian gas for Europe

11:51 29/01/2009
MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - The recent gas dispute illustrates the importance of diversifying gas routes to Europe. Apart from this, most experts predict a sizable increase in the demand for gas in Europe in the next one to two decades.

In this context, Gazprom (Russia) and Eni (Italy) have signed an agreement to build a new gas pipeline, South Stream, to link Russia's Black Sea coast with southern and central Europe.

Europe's growing demand for gas requires diversified gas routes.

A long-term trend toward increasing gas consumption in Europe is turning South Stream into an important project. To meet the demand, gas supplies to Europe should be increased at least by 70 billion to 100 billion cubic meters per year by 2020. The European Union of the Natural Gas Industry or Eurogas predicts that by 2030 the European Union's demand for gas will grow from 440 million to 625 million metric tons in the oil equivalent.

Gazprom and Eni signed an agreement in June of 2007 to initiate South Stream feasibility studies. It will run underwater from Russia's Black Sea coast in Dzhubga to Bulgaria's Varna and cross the Adriatic, tentatively, from the Greek coast to the south of Italy.

By land, the pipeline will cross Russia to reach the Black Sea coast and the south and central European countries of Bulgaria, Greece, Serbia, Hungary, Slovenia, and Austria.

Intergovernmental agreements to build the overland segments have already been signed with Bulgaria, Greece, Serbia, and Hungary. A draft agreement with Slovenia is under discussion, and there are plans to sign a similar contract with Austria.

These documents have set up joint ventures to compile a feasibility report for the project, starting with the overall justification of investment (JOI), which will cover overland sections in Russia, Bulgaria, Serbia, Hungary, Slovenia, and Greece, and the Black Sea underwater segment. Once the JOI is completed, a decision will be made on investment.

South Stream's total capacity will be 31 billion cubic meters per year. It will meet the EU's growing energy demand, expand its gas transportation network, make it more flexible, and promote economic cooperation in Europe. It will also enhance energy security in Europe by providing a reliable and alternative transportation route.

Importantly, the project is based on Russia's substantial gas deposits.

Benefits for participating countries

Environmentally conscious Gazprom and Eni are using the latest technology to guarantee compliance with the most rigid environmental and security standards. They have already carried out another complicated project by building the Blue Stream gas line linking Russia and Turkey. It has been operating without a hitch since 2003. The South Stream transit countries have no grounds to fear that South Stream's construction will threaten their environment.

The pipeline will allow south and central European countries to not only reliably meet their growing demand for gas, but will also provide many economic benefits including job creation and tax revenue.

In Bulgaria, a company owned by a 50-50 partnership between Bulgargaz and Gazprom will run the pipeline. They will also own equal parts of Bulgaria's branch lines. Bulgaria will receive hundreds of millions of euros from this operation, new jobs and underground gas storage facilities.

Apart from becoming a reliable source of long-term gas supplies, South Stream will allow Bulgaria to double its gas consumption from 3 billion to 6 billion cubic meters. It will enable Bulgaria to fully meet its gas requirements in the event of force majeure.

In Serbia, preliminary estimates indicate the pipeline's construction will provide 100,000 new jobs and attract 2 billion euros worth of foreign investment. It will receive an annual duty revenue of over 200 million euros from gas transit, and another 100 million euros per year for operating its sections and maintaining its quality. Under the project, an underground gas storage facility at Banatski Dvor will be built providing a major supplement to its gas infrastructure.

Gazprom and the Serbian state-owned gas company Srbijgas have signed an agreement to establish a joint venture to build and operate South Stream's Serbian branch with an annual capacity of 10 billion cubic meters of gas.

In Hungary, Gazprom and the Hungarian Development Bank (MFB) will build and operate the pipeline. Hungary is Gazprom's fifth largest gas consumer (7.5 billion cubic meters per year). Gazprom is studying the possibility of building a co-owned underground gas storage facility in Hungary with a net storage volume of more than 1 billion cubic meter.

South Stream will be a benefit to more than just the countries it will run through. Under the plan, it will reach a major gas transportation hub in Austria, from where it may also supply Germany and Italy, two major gas importers in Europe.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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