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5 Feb, 2009 14:14

Race to build new gas pipe to Europe

Bulgaria's President has called on Europe to speed up approval for the South Stream gas pipeline project. Diversification of energy supplies was the main topic during Georgy Pyrvanov's meeting with President Medvedev.

Talks on the so-called South Stream plan have been closely watched after last month’s energy dispute between Russia and Ukraine.

Bulgaria was one of the worst-affected countries during the gas crisis. It is highly dependent on Russian gas.

On Thursday, Presdient Dmitry Medvedev and his counterpart Georgy Pyrvanov signed a document aimed at speeding up construction of the South Stream pipeline. Once built, the pipe will carry gas supplies to Europe, bypassing Ukraine.

Bulgaria is demanding 250 million euros in compensations for loss of gas during the row. Russia has made it clear that Ukraine is responsible and must deal with compensation claims.

The Russian leader said every effort must be made to head off gas cuts in the future.

“The main thing is to set up modern mechanisms, aimed at preventing such conflicts in the first place,” Medvedev said.

“Secondly, we need to diversify gas supplies. In particular, I mean the implementation of the South Stream project. We have talked about a quick transition from agreement to the actual construction of the project”, he said.

Pyrvanov said Bulgaria’s support for the South Stream project doesn’t conflict its backing up the Nabucco pipeline.

“We hope the construction efforts for the South Stream will be intensified, and we will support this project. However, we will be supporting the Nabucco as well, because it is a European priority,” he said.

Nabucco pipeline: stakes are high

Although it has yet to be built, the stakes are already high, and rising. Gazprom’s Aleksandr Medvedev said the gas giant may increase the planned capacity of the South Stream pipe.

A bigger pipe, it is believed, would reduce the chances of interruptions of gas flow to Europe.

But the main characteristic of the South Stream pipe is that it would bypass Ukraine, delivering product to Hungary and Austria via Bulgaria and Serbia.

This means laying 1,800km of pipe on the bottom of the Black Sea, which explains the high cost of the project.

“A very high cost pipeline will mean very high cost gas; essentially the Russian offering is – we will build you this very expensive pipeline and your voter will then pay very high prices for gas. There's a much cheaper option here,” says Alan Riley from the Centre for European Policy Studies.

Last year's estimates for building South Stream showed that it was almost twice as expensive as the alternative Nabucco project.

However, the problems with both projects are less about money than the gas itself. Russia has a long-lasting contract to buy Central Asian gas and a possibility of redirecting some of it to South Stream. On the other hand, Central Asia has not yet found the gas to fill Nabucco, so even if built it could remain empty.

Some experts say Nabucco and South Stream should not be considered competing projects.

“It is wrong to try and present Nabucco as an anti-Russian project. If you look in western media they say it is a project that will set Europe free from dependence on gas from Russia. It can’t compare – at least in terms of the gas volumes it can supply Europe with,” Leonid Gregoriev from the Institute of Energy and Finance said.

Even if built, Nabucco will supply less than a third of Europe's gas needs.