South Stream Pipeline, Europe

The South Stream pipeline project is intended to transport Russian natural gas across Europe via Bulgaria to Italy. The project has not yet started construction but is a strong rival to the Nabucco pipeline for competitive supplies.

South Stream is to be built by Gazprom (Russian) and Eni (Italian) and will also be a direct competitor to part of the planned extension of the existing Blue Stream pipeline from Turkey across Europe through both Bulgaria and Romania to Hungary.

ROUTE OF SOUTH STREAM

For the offshore section, the South Stream will cross the Black Sea from the Russian coast of Beregovaya (starting point of the Blue Stream pipeline where a compressor station is sited) to the Bulgarian coast at Varna, with a 900km (560 miles) pipeline reaching a maximum water depth of 2,000m.

For the onshore section there are two different routes through Bulgaria being studied: north-west and south-west.

From the coastal town of Varna, the south-western route will pass through Greece and the Ionian Sea to southern Italy (this could also supply the Turkey-Greece-Italy pipeline).

The north-western route should run to the northern region of Italy with an additional branch line to Austria. The offshore section of the pipeline is due to be commissioned by 2013.

PIPELINE START

The project to construct the new South Stream pipeline was announced in June 2007 (a strategic agreement to build the pipeline was signed in November 2006 by Eni and Gazprom) and a joint venture company was set up in January 2008 to construct and operate the pipeline called South Stream AG (50/50 joint ownership between Gazprom and Eni (South Stream AG incorporated on in Zug in Switzerland with a share capital of CHF 100,000).

A memorandum of understanding was signed in November 2007 for the construction of the new pipeline. The pipeline project will now enter a series of feasibility and marketing studies to prove its financial worth (Saipem a subsidiary of Eni are in the process of carrying out preliminary studies on feasibility and cost which should report by the middle of 2008).

Paolo Scaroni the CEO of Eni commented: "The South Stream project is the third pillar of the strategic agreement signed by Eni and Gazprom in November 2006. This project in the gas midstream would enable Eni to add further value to its recent acquisitions of the assets of Arctic Gas and Urengoil. The South Stream project, whose development respects all sustainability and environmental criteria, will represent a decisive step towards strengthening the security of energy supply for the whole of Europe."

OTHER BRANCHES AND TERRITORY

There are other branches of the pipeline which will have separate agreements. Russia and Bulgaria signed an agreement in January 2008 for construction and operation of the pipeline in Bulgarian territory (there are two possible routes through Bulgaria under consideration, northwest and southwest, which Gazprom and Bulgargaz will build and operate).

An agreement between Serbia (Srbijagas) and Russia was signed in December 2006 (before South Stream was announced) to study the possibilities of a pipeline from Bulgaria through Serbia and Croatia to Italy.

In January 2008 Russia and Serbia agreed the route of the South Stream pipeline through Serbia (February 2008 a joint venture company was formed to build and operate the Serbian section to supply 10bcm a year). In addition in February 2008 Hungary and Russia set up a company to build the pipeline. Other countries could to be involved including Slovenia, Croatia, Bosnia and Herzegovina, or even Romania.

A government-level meeting between Russia and Italy with Gazprom and ENI involvement was planned for the first quarter of 2008 to outline the schedule for reaching agreements with transit countries along the gas pipeline's route.

SOUTH STREAM AIMS

The pipeline is planned to carry around 30bcm of gas annually. The sections through Serbia and Hungary will both have a capacity of at least 10bcm per annum. The construction will take around three years and is now waiting for planning approval from the European Union competition and regulatory authorities.

The Serbian construction is expected to start by 2012. The cost of the pipeline has been estimated at €7bn to €10bn but some estimates have put the cost as high as $20bn to $30bn. Gaz de France has also been in negotiation to join the project.