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4 Jan, 2010 07:27

South Stream development pushes cut off risk into past

European gas consumers have faced disruptions to their supply over recent New Years breaks, but the threat of future cutoffs is receding with the progress of the South Stream project.

The trans-European project made big strides in 2009. South Stream passed the tipping point – winning approval from 6 transit countries. That secures its route – from the Black Sea to Europe, splitting into two forks, north and south. Only Bulgaria says it may yet review an agreement reached with the previous administration.

The feasibility study for the underwater section will be launched at the beginning of 2010 with construction scheduled to begin at the end of the year according to Gazprom CEO, Alexei Miller.

“The realization of the South Stream project will ensure undisrupted supplies of gas to Europe. The pipeline will carry 63 billion cubic metres of gas annually from 2015. We are sure that construction will go according to schedule.”

The project launched by Gazprom and Italy’s Eni was joined by Electricity de France – which will take a 10% stake in the underwater part of the pipeline.

The multiple backers will secure funding for the project, according to Vitaly Ermakov from Cambridge Energy Research Associates.

These are just permissions to start project work, preparing the project documentation. The issue of financing this very costly project has not yet been considered seriously. It will be an issue. South Stream, according to Gazprom's estimates, may cost as much as 25 billion dollars – unprecedented for a new pipeline.

And even when it's built, there remains a question over demand for gas in the target market of the EU according to Alexander Nazarov, Senior Analyst IFC Metropol

“To the question, ‘is there a need for South Stream?’ the answer is no. Especially if we keep in mind the Nord Stream pipeline project.”

There are other rivals, including the already-completed Blue Stream to the south. As for gas producing countries, some like Iran and Azerbaijan may be willing to supply Europe, while Turkmenistan has turned East, and is scheduled to start gas deliveries to China next year.