Russia secures final piece in South Steam jigsaw as Bulgaria signs gas deal

By bne IntelliNews November 16, 2012

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Gazprom signed a long-term gas supply deal with Bulgaria on November 15, securing at the same time the final piece of the jigsaw for its giant South Stream gas pipeline project.

The deal, signed by CEO Alexei Miller in Sofia, will see Bulgaria handed a 20% discount on gas prices starting in 2013, and running to 2022, with the bulk of deliveries through South Stream, Gazprom said in a statement. According to the contract, Gazprom will supply 2.9bn cubic meters of gas to Bulgaria per year (cm/y), initially via current routes, but later switching to the planned mega-project.

Wholly dependent on Russia for gas supplies, Bulgaria has been holding out for a new contract before it agreed to host the new pipeline as it makes shore from its route beneath the Black Sea. South Stream - funded by Gazprom, Italy's Eni, France's EDF and Germany's Wintershall - will cost an estimated $16bn, and from 2016 will transport up to 63bn cm/y of Russian gas through Bulgaria, Serbia, Hungary, Slovenia, Austria and Italy, with offshoots to Greece and Croatia.

Crucially for Moscow, the pipeline will run under the Black Sea to bypass Ukraine. Russia has had several rows over the cost of gas transit through the country in the past, leading to supply cut-offs.

With Bulgaria finally in place on the map, the South Stream board, comprised of representatives of the four companies, met in Milan later the same day to sign off on the final investment decision for the project to go ahead.

That ceremonial event is a blow to the EU, which has tried to put together a competing pipeline Nabucco and is currently investigating Gazprom over suspicions of abusing its market power and thwarting competition in the region. A Gazprom representative denied to the FT that the timing of the agreement on South Stream with Bulgaria was speeded up in order to avoid new EU legislation on competition coming into effect in January 2013. "The two events are completely unrelated. We had always planned to sign this agreement on November 15 and this never changed," the unnamed official said.

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