mojeNovosti.com
By Ioannis Michaletos | The offshore pipeline project named South Stream, is planned to carry 63 billion cubic meters (bcm) of natural gas per year. Pipeline sections in Serbia, Hungary, and Slovenia will have capacity at least 10 bcm per year.
Furthermore two gas storage facilities would be constructed of which one would be an underground storage facility in Hungary with capacity of minimum 1 bcm and another one in Banatski Dvor, Serbia with capacity of 3.2 bcm. The pipeline is expected to cost €19—24 billion including the construction of offshore section which will cost of €8.6 billion.
The pipeline will be built and operated by several project companies. The offshore section of the pipeline would be built and operated by South Stream AG, a joint company of Gazprom and Eni. South Stream AG was incorporated on 18 January 2008 in Zug in Switzerland with the share capital of 100,000 CHF.
Électricité de France got 10% stake in South Stream AG. The Head of the company is Marcel Kramer, former chief executive officer of the 100% state-owned, Dutch gas & transportation company, Gasunie.
The Bulgarian section of the pipeline will be built and operated by a joint venture of Gazprom and Bulgargaz which was formally agreed upon on the 13th of November 2010. According to the Sofia Echo media, “”Bulgaria and Russia sealed on November 13 2010 an accord to set up a joint venture to build and operate the Bulgarian section of the South Stream gas pipeline”.
The Serbian section will be owned by the joint venture of Gazprom and Srbijagas.The Hungarian section will be built and operated by the equally owned joint venture between Gazprom and the state-owned Hungarian Development Bank MFB, which will buy the elaborated feasibility study of Hungarian section from SEP Co., a joint venture of Gazprom and MOL.
The Slovenian section will be built and operated by an equally-owned joint venture of Gazprom and Geoplin Plinovodi.For the construction of the Croatian section a 50-50 Russian-Croatian joint company was established on March 2010, whilst in Greece, On June 7 2010, Gazprom and DESFA (Greek network gas company) created the joint project company South Stream Greece SA on parity basis (50% held by each company).
Lastly, Austria signed an intergovernmental agreement with Russia to join the South Stream project on April 24, 2010.
Interview with Mr. Sergey V. Korovin (2009)
Deputy Head of International Business Department – Chief of International Projects Directorate
Theme: South Stream natural gas pipeline project
“South Stream, Blue Stream and Nabucco are by no means mutually exclusive projects”
Ioannis Michaletos: What are the major benefits regarding the European energy security by the construction of the South Stream pipeline?
Sergey V. Korovin: Energy security can be defined as the reliable supply with sufficient quantities of fuel at affordable prices and in an ecologically sustainable form. We at Gazprom strongly believe that South Stream will contribute positively to all three of these aspects.
Projections of the future natural gas consumption in Europe forecast a steep increase of demand by 2020 and highlight that there will be a significant import gap unless Europe invests in new energy infrastructure.
This trend will be underpinned by the ambitious CO2 reduction targets under the EU’s climate change policy, which points to natural gas as the fuel of choice for decades to come, given its relatively low emission profile.
Thirdly, due to sheer size and geographically close location of our resources to Europe, we are 100% confident that Gazprom will be able to offer natural gas at economically competitive prices.
Finally and most importantly, however, the recent gas transit has focused minds that Russia and Europe need to work hard to diversify supply routes in order to mitigate the dangers posed by political interferences in transit countries, but also by natural catastrophes or terrorist attacks.
In short, South Stream, just like the Nord Stream pipeline in the Baltic Sea, will significantly help to satisfy Europe’s quest for energy security.
I.M: Are there any details of the source of the gas that will stream through the pipeline. For instance would it be Russian or it will include Central Asian one?
S.V.K: The projected gas for the South Stream project will be delivered from Russia’s Unified Gas System which contains gas of different origins, including from Central Asia. Gazprom will use this gas to supply South Stream, in accordance with the required physical conditions.
I.M: What constitutes the main technical challenge of the pipeline construction and could environmental reasons play a part in delaying the project?
S.V.K: South Stream is indeed a very complex project. When constructed, it will be about 3000 kilometres in length. A significant part of the South Stream pipeline will be laid on the bed of the Black See at a depth of up to 2000 meters.
It will require a unified operational management to synchronize its operations with the Unified Gas System of the Russian Federation as well as with the four to six national sections of the pipeline.
At the same time, we are taking environmental concerns very seriously. The route of the off-shore section of the pipeline will be carefully assessed to ensure safety and to minimize any potential impact on the biosphere of the Black Sea.
Each area of ecological concern will be carefully investigated together with the countries involved, and in accordance with international and national law.
Gazprom, Eni and our national business partners are well-prepared to overcome these challenges, and we are confident that we will be able to finalize the project within the planned timeframe.
I.M: What can be said around the cooperation of the countries involved (Russia, Bulgaria, Greece, and Serbia) regarding the preparation and the planning of the construction?
S.V.K: Russia, Bulgaria, Greece and Serbia already signed intergovernmental agreements in 2008, and Gazprom has concluded commercial agreements with most of its counterparts in these countries.
Currently we are in the process of establishing joint venture companies with our corporate partners to develop and operate the pipeline in each of these countries. The joint venture company “South Stream A.G.” with Eni is already established since January 2008 and the others shall soon be registered.
We expect that Austria and Slovenia will join the project soon. With these agreements on their way, Gazprom and its partners have started the feasibility studies in the respected territories and are developing the ground for an efficient co-operation to continue throughout the construction and operations of the South Stream project.
We are confident that each partner is able to bring to the project significant experience and technological know-how, and we at Gazprom are looking forward to this fruitful and mutually beneficial cooperation.
I.M: There is a lot of talk and arguments regarding the American-Russian confrontation in geopolitical and strategic issues. Do you believe that this would affect the South Stream project?
S.V.K: Political issues can affect any business initiative in any sector, since they can delay commercial decisions. The most recent example for this was when negotiations on the business deal between Gazprom and Naftogas Ukrainy in December 2008 were finalized.
Everything was prepared and we were just missing the signature, when Ukrainian politicians forced our counterparts to leave the negotiation table. Everybody agrees that Europe’s energy security should not be taken hostage by politics.
Instead, it is important that we allow the market mechanisms to do their work.
There is a strong business case for South Stream; and I am confident that the detailed technical and economic assessment which we are currently preparing will showcase this.
I.M: Regarding the “Gas war” as it was called in Europe, between Russia & Ukraine, do you assess that it will have any direct (positive or negative) impact for the future developments of South Stream?
S.V.K: In my opinion, all affected parties were losers in the recent gas transit crisis. The unprecedented and devastating halt of gas flows clearly demonstrated that Europe’s dependency on one transit monopoly is detrimental to its energy security.
It is in Russia’s and Europe’s shared interest to work hard to diversify gas supply routes to ensure energy security. For decades, Gazprom has provided energy security to Europe, and this remains at the core of our business strategy.
Our massive investments into South Stream and Nord Stream showcase that we are firmly committed to put our money where our mouth is.
I.M: Gazprom has recently made a great deal regarding the signing of bilateral agreements with Serbia. Is it safe to assume that gas storage facilities will be constructed in that country relating to the South Stream pipeline?
S.V.K: The business of gas storage facilities is a self-sustained business.
The importance of its role is increasing, both due to the volatilities in the gas market and energy security concerns. Srbijagas is offering Gazprom an attractive opportunity to investigate possible investments to increase the capacity of the existing gas storage facility in Banatski Dvor.
Once South Stream will be implemented, all gas storage projects located along its route will obviously be considered. But the respective investment decisions will be taken independently.
I.M: Concerning the timetable for the project, when is it calculated to commence and has the world financial crisis affected any planning made in the past?
S.V.K: Neither the global economic crisis, nor the latest drop in energy prices has affected the project.
South Stream is currently in the pre-investment stage, and after all feasibility studies have been completed, investment decisions will follow.
As part of these investment decisions, all parties involved will agree on and commit to the overall timetable of the South Stream project.
It is reasonable to assess that from that point onwards, the project may commence within a period of 5 years, subject to the permitting process in respective jurisdictions.
I.M: In case South Stream becomes a reality within the coming years, will that affect directly other planning such as the Blue Stream II and Nabucco?
Can actually all plans function in parallel or are the gas supplies limited and can be streamed through only one corridor?
S.V.K: The European gas consumption projections envisage a significant increase by 2020.
Therefore, additional volumes of gas will be needed, and these fresh volumes will need to be provided by various new pipelines.
South Stream, Blue Stream and Nabucco are by no means mutually exclusive projects.
If both Nabucco and South Stream are built, Gazprom will cooperate closely with our European partners to optimize the gas flows of the different pipelines in order to guarantee a smooth functioning of the gas supply system.
To answer your question, we do not expect any complications in this regard.
I.M: According to your estimation, is there a need for an all-conclusive dialogue between Brussels and Gazprom regarding the South Stream project?
In general how would you view the stance of the European Union as an institution regarding the planning made by your company?
S.V.K: Gazprom is in regular contact with the European institutions and will continue to engage with them.
Once the South Stream project is advanced to the stage when the base routing and preliminary assessments are agreed, the project partners will present it to European authorities and open a regular dialogue related to its feasibility and future permission process.
We believe the project will fit within the economic and political agenda of the European Union in the same way as Nord Stream does, which has already gained the status of a TEN project with the European Commission and now is an integral part of the EU’s energy policy.
As a major gas pipeline which will bring fresh volumes of natural gas on a new route to Europe, I don’t see why South Stream shouldn’t get similar support from the EU.
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