Russia's Gazprom Plans to Invest $16.9 Billion in Gas Transportation System to South Stream Pipeline

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's state-owned natural gas monopoly OAO Gazprom (OTC:OGZPY) (Moscow) plans to invest $16.9 billion in the construction of the South Corridor gas transportation system, which will ship gas to the future South Stream pipeline. The pipeline project aims to bypass transit countries like Belarus and Ukraine to ship Russian gas under the Black Sea.

According to a statement on Gazprom's website, the investment will increase the total cost of the South Stream pipeline project to $38.4 billion. Also, the offshore and European sections of the project are forecast to cost $21.5 billion.

Gazprom plans to add pipes and power stations in Europe to keep market share in the continent, as slowing economic growth curbs demand and competition for customers increases. The company has largely relied on piped fuel, even as global output of liquefied natural gas expands. The project is scheduled to begin delivering gas at the end of 2015 and reach a capacity of 63 billion cubic meters per year in 2019.

Gazprom, which is partnering with Italian energy firm Eni SpA (NYSE:E) (Rome, Italy), BASF SE (OP:BASFY) (Ludwigshafen, Germany) unit Wintershall and Electricite de France S.A. (ENX:EDF), started work last month on the construction of the South Stream pipeline's offshore section.

The investments in the South Corridor are allocated until the end of 2017, when the last of the four South Stream lines is scheduled to launch, Gazprom said. Currently, Gazprom supplies about 33% of Europe's overall gas requirements, and European sales account for 80% of Gazprom's income, which represents a major slice of Russia's income. For additional information on South Stream, see August 29, 2012, article - Bulgaria and Gazprom Sign Construction Protocol for South Stream.

In early December, Turkish Energy Minister Taner Yildiz said that Ankara won't take part in the Russia-led South Stream gas pipeline project, adding that Turkey favoured Nabucco and the Trans-Anatolian Pipeline (TANAP) project, which will facilitate the export of gas from the Shah Deniz fields to Turkey and on to Europe. The projected TANAP pipeline can be ramped up to 30 billion cubic meters per year to include gas from other offshore gas fields being developed in Azerbaijan and other Caspian producers, such as Turkmenistan. For additional information, see November 28, 2012, article - Azerbaijan Backs TANAP Project to Export Gas to Europe.

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