European Section of South Stream Gas Pipeline Starts

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - Russian gas giant, OAO Gazprom (PINK:OGZPY) (Moscow, Russia), has kicked off the construction of the Bulgarian section of the South Stream pipeline, which will transport natural gas across the Black Sea directly into Europe.

Gazprom maintained that South Stream will help boost Europe's energy security by allowing Russian gas to be imported directly into the European Union (E.U.). rather than through pipelines running through the Ukraine. The rocky relationship between Gazprom and the Ukraine has seen the company cutting off supplies to the country over unpaid bills, which led to drastic gas shortages throughout Europe in 2006 and 2009. Gazprom supplies a quarter of all the gas in the E.U. and there is renewed fears in recent weeks that Gazprom may shut off Ukrainian supplies in the coming months as the Ukraine owes its hundreds of millions of euro.

The Bulgarian section will run 540 kilometers (km) and will cost around €3.5 billion ($4.8 billion). Overall, the onshore section in Europe will be 1,455km long, running through Bulgaria, Serbia, Hungary, Slovenia and northern Italy. Construction on the Serbian section will start by the end of the year. The underwater Black Sea section will exceed 900km and its maximum depth will be more than two kilometers.

The welding of the first Bulgarian section was attended by senior Gazprom officials, Alexander Novak, Russian Minister of Energy and Plamen Oresharski, Prime Minister of Bulgaria.

"A landmark event has taken place today: construction started on the Bulgarian section of the South Stream gas pipeline -- the most large-scale and important project in Europe," stated Alexey Miller, Deputy Chairman of the Board of Directors at Gazprom. "This project is a key element of energy security of the whole European continent. Gas will be supplied directly from Russia to Bulgaria, from Russia to the European Union, bypassing transit countries, thus providing for the most reliable and uninterrupted supplies. South Stream will eliminate transit risks for ever. South Stream will accelerate the economic development of Bulgaria, attracting €3.5 billion of direct investments to the country and creating over 2,500 jobs. A new gas transmission infrastructure will increase the investment attractiveness of Bulgaria. Bulgarian consumers will receive gas at a lower rate as the gas pipeline runs directly from Russia via the Black Sea. The construction follows a strict schedule: before the year's end construction will start in Serbia, then in Hungary. Therefore, South Stream is steadily running ahead. Bulgarian consumers will receive first gas via South Stream in December 2015."

Last month, the European Commission said it was preparing charges against Gazprom relating to the company abusing its dominant position in central and eastern Europe. European Union (E.U.) Competition Commissioner, Joaquin Almunia, revealed that a charge sheet, or 'statement of objections' is being prepared. It is believed that the company could be facing charges related to price fixing and restricting trade by the end of the year. For additional information, see August October 11, 2013, article - E.U. Readies Charges Against Russia's Gazprom.

Russian Prime Minister, Dmitry Medvedev, took steps last week to assure Europe that the country would not halt gas supplies to the Ukraine this winter over unpaid bills. Speaking to Reuters, he said: "In this sense I think that for now everything is okay...I don't expect any complications."

However, he did say that the unpaid bill of an estimated $882 million bill for August deliveries of gas must be paid.

"We understand that they have economic difficulties, but they still have to pay, especially after we gave them loans and financed transit," Medvedev explained. "It's the law - you have to pay for delivered goods. It's normal practice around the world. Let them pay."

At the end of last year, the countries clashed again when Ukraine's government said it would cut Russian gas imports from 27.7 billion cubic meters to 20 billion cubic meters in 2013. For additional information, see November 26, 2012, article - High Noon for Russia's Gazprom and Ukraine on Gas Contracts.

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