Russia to build most expensive gas project in history

Russia’s natural gas giant Gazprom plans to launch its most expensive project ever against the background of the disastrous downfall of its profit. The South Stream pipeline will connect Russia with South Europe along the bottom of the Black Sea by 2015. Plunging oil prices will cut the profits of the state-run monopoly by $19-26 billion, whereas the cost of the new pipeline is evaluated at 24 billion euros. It would be possible to avoid this spending if Gazprom continued its gas transit via the territory of Ukraine. Ukrainian Prime Minister Yulia Tymoshenko already said that Russia has only one goal with its new project – to get under Ukraine’s skin. This does not seem to be likely for it is a highly expensive initiative for Russia.

Experts say that the construction of the new pipeline will cost Gazprom too much under the conditions of the current economic crisis. Gazprom may suffer losses already during the fourth quarter of the current year. The losses of the natural gas giant will cause a serious damage to Russia’s budget too.

Gazprom made the first official publication of its export reduction forecasts in 2009. The export earnings of the corporation may drop by $18-25 billion this year due to low oil prices. However, Alexander Medvedev, deputy chairman of Gazprom’s administration, said at a recent meeting with investors that the project was evaluated at 19-24 billion euros. Not less than four billion of the amount will be used for the construction of the underwater part of the pipeline. About 20 billion euros will be used for the surface part of the system stretching from Bulgaria to Austria (1,300 kilometers) and to the Adriatic coast of Greece (990 km).

The final cost and the extension of the pipeline will depend on the final route. The shortest one of them runs along the shelf of Russia, Ukraine, Romania and Bulgaria. The second one passes Romania by. Other two variants stipulate the pipeline construction along the shelf of Russia, Turkey and Bulgaria.

Russia has already signed intergovernmental agreements with Bulgaria, Serbia, Hungary and Greece. Gazprom will only have to coordinate its documents with Slovenia and Austria.

Gazprom officials previously said that South Stream would be capable of transporting 31 billion cubic meters of gas a year. However, Alexander Medeved stated last week that it would be able to carry up to 47 billion cubic meters. South Stream and Nord Stream would thus transport 304 billion cubic meters of gas a year once the two systems are complete in or around 2015. At the same time, the export of the Russian gas to Europe will not exceed 220 billion cubic meters a year. In other words, South Stream will snatch Ukraine’s transit volumes.

Source: agencies

Author`s name Dmitry Sudakov