Russia's planned giant South Stream gas pipeline received a major boost on March 21 when Germany's Wintershall signed a preliminary deal to take a 15% stake in the project for around €2bn.
The news is a coup for Russia, which has been pushing the South Stream pipeline as a rival to the EU-backed alternative Nabucco gas pipeline, which involves the construction of more than 4,000 kilometres (km) of new infrastructure costing an estimated €7.9bn that will eventually bring 31bn cubic metres per year (cm/y) of first Azeri and then Central Asian and even Middle Eastern gas through Turkey, up through southeast Europe and into a gas hub in Austria, without crossing Russian soil.
Russia has been attempting to build a trident of gas pipelines that will supply the bulk of Western Europe's gas needs. It already operates the Druzhba pipeline that runs through Ukraine and carries about 80% of Russia's gas deliveries to EU clients. But Ukraine has been a tricky transit state for Russia, the source of several disputes that have caused supplies to be cut off. As such, it's building two new pipelines that will bypass Ukraine: the Nord Stream pipeline that will run under the Baltic Sea and connect Germany's north coast directly to a large gas field in Russia's northwest, and the €24bn South Stream pipeline that will bring up to 63bn cm/y of new supplies through Southeast Europe from 2015.
The problem is there isn't enough gas or enough demand to fill both Nabucco and South Stream. Whichever project gets off the ground first, will kill the other.
The wrangling between the two projects has been going on for years, with each side accusing the other of lacking economic sense. Nabucco's fate relies on Azerbaijan choosing it, rather than two other competing European pipelines, to take about 10bn cm from the second phase of the country's big Shah Deniz gasfield, and also Turkmenistan offering it gas to fill the pipeline's capacity down the road.
Azerbaijan was supposed to have made a decision in April on whether Nabucco, the Interconnector Turkey-Greece-Italy (ITGI) or the Trans-Adriatic Pipeline (TAP) would get the Shah Deniz gas. But on March 4, Dow Jones cited unnamed sources as saying that a decision to allocate gas has been put back from the first half of this year to the second. The report says the consortium of companies behind Shah Deniz, including BP, Statoil and Azeri state firm Socar, have found the negotiations with the pipelines bidding for the gas "unexpectedly complex." Analysts suspect EU pressure has delayed the decision in order to give it more time to get the Turkmens on board.
By joining the South Stream consortium, Wintershall, which also has a 20% stake in Russia's Nord Stream pipeline, has given a fillip to South Stream's prospects. The news comes on the back of bevy of reports at the start of March that South Stream was headed for the ashcan of history.
Prime Minister Vladimir Putin had suggested building several new liquefied natural gas (LNG) facilities in Russia's west to ship Russian gas across the Black Sea, which would negate the need for any pipelines at all, as a liquid form of gas can be loaded onto special ships.
The deal with Wintershall, part of the giant chemical and energy conglomerate BASF Group, suggests that the LNG "idea" was a red herring. Gazprom chief Alexei Miller evidently sought to put lingering doubts to bed at the signing ceremony, saying: "This means that the South Stream project has been decided and Gazprom will remain a supplier of gas to Europe for many decades to come," AFP quoted Miller as saying. "Liquefied natural gas can only be viewed as an additional option."
And Putin praised the deal with Wintershall, saying the German company's participation in the project was a "sign of stability" on the energy market. "This is a tremendously important agreement considering the processes occurring today on the international energy markets," he said, adding a in a sly dig at Nabucco: "Gazprom has the markets and, most importantly, Gazprom has the volumes."
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