South Stream agreement on the menu as Italian leadership comes to Sochi

Italian Prime Minister Silvio Berlusconi and ENI's CEO will meet Russian officials in Sochi on Friday over the South Stream pipeline project. An agreement is expected but several issues remain unresolved.

With Italian Prime Minister Silvio Berlusconi and ENI CEO Paolo Scaroni arriving in the host city of the 2014 winter Olympics for Friday talks, Sochi is likely to see the final agreement between Russia and Italy on another landmark project – the construction of the South Stream gas pipeline.

Russia and Italy will invest billions of euros in South Stream, which is designed to pump 31 billion cubic meters of Central Asian and Russian gas annually to the Balkans and then onward to EU countries. Valery Yazev, Head of the Russian Union of Gas Suppliers believes an agreement is highly likely.

“Italy is a very serious partner in the energy sector. So I believe all agreements will be signed. There are no major problems in negotiations. We just need to settle some details and will be able to sign a contract that guarantees the long-term partnership of Gazprom and Italian energy firms.”

Amongst the details still to be resolved is Italian interest in marketing the gas in all transit countries, while Gazprom insists on joint distribution only in Italy, with ENI and Gazprom still to work out a profit sharing mechanism. Mikhail Krutikhin, from the Rus Energy Agency doesn’t believe resolving these details will pose any major last minute problems.

“I don’t think they have very serious issues to settle. They are perfectly able to cooperate. They have proven it when building the blue stream project for example. When Gazprom was lacking some money it sold very big stake in undersea pipeline to the Italians and in fact the undersea portion of the pipeline now belongs 50% to Italy 50% to Russia.”

Gazprom also wants to have a controlling stake in the parts of the pipeline that cross transit countries. Three of them – Serbia, Bulgaria and Greece – say they're ready to sign the final agreement over their participation in the project at the Sochi meeting. When the deal is struck, all parties will be a step closer to the final investment decision which will be the trigger for the start of construction.