U.S.$ 15-billion pipeline to pump Russian gas to Europe

Gazprom and Italian gas giant Eni have received a political blessing for the South Stream pipeline. President Putin and Italian Prime Minister Romano Prodi have signed an agreement on the creation of a company to run the U.S.$ 15-billion project.

The supply of energy from Russia to Europe was the focus of Thursday's talks between President Vladimir Putin and Italian Prime Minister Romano Prodi.

The two leaders signed an agreement on the South Stream pipeline, which will link Russia to the EU, bypassing the usual transit countries, Ukraine and Belarus. It's no longer just a project on paper. From Friday, South Stream becomes a company with a proper structure and the necessary governance.

It is a 50/50 joint venture between Gazprom and Eni. The cost of the first phase will be shared equally between them.

The 900-kilometre-long South Stream will be capable of delivering 30 billion cubic metres of gas a year. It will go from Russia directly to the EU under the Black Sea and Bulgaria. From Bulgaria the pipeline will have two directions: one heading north to Hungary, Romania and Austria, and one south to Italy. The on-shore routes will have to be discussed further with transit countries.

Analysts say that South Stream might become a rival to Nabucco – a planned project that bypasses Russia. Nabucco would run from Azerbaijan to the EU, through Turkey. However, Paolo Scaroni, the head of Eni thinks both projects are possible.

“Europe has room for Nabucco and South Stream,” Scaroni stated.

Vitaly Yermakov from Cambridge Energy Research Associates says the project could once again raise the issue of European energy security.

“In a commercial sense additional flows of gas to Europe, irrespective of the source, is a good thing. But recently the European commission has been trying to push the agenda of diversification of the sources of supply and in this sense, of course, the politicians might be concerned about more Russian gas coming to Europe rather than gas from alternative sources,” Mr Yermakov said.

South Stream still has a lot of obstacles to overcome. Even after all the necessary documentation has been processed, and routes through transit countries are agreed, it will still take three years and cost more than U.S.$ 15 billion to complete the pipeline.