Gazprom and European Union Planning Strategic Natural Gas Pipeline Routes

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Researched by Industrial Info Resources (Sugar Land, Texas)--Alexander Medvedev, Deputy Chairman of OAO Gazprom (RTS:GAZP) (Moscow, Russia), recently announced that the capacity of the South Stream gas pipeline, which transports gas to the Balkans and other European nations, would be enhanced by 16 billion cubic meters per year to reach 31 billion cubic meters per year by 2013. The pipeline will pump the increased quantity of gas from Russia and Central Asia to the Balkans, Bulgaria, Greece, Hungary, Italy and Siberia. The increasing demand for gas is spawning plans to increase the transit capacity of the South Stream pipeline to 47 billion cubic meters per year.

Also planned is the launch of the Nord Stream pipeline, which will have a capacity of 55 billion cubic meters per year. This pipeline will pump Siberian gas to Europe and is being jointly built by Gazprom, E.ON AG (OTC:EONGY) (Dusseldorf, Germany), BASF SE (OTC:BASFY) (Ludwigshafen, Germany), and N.V. Nederlandse Gasunie (Groningen, The Netherlands). The pipeline is being built under the Baltic Sea and is expected to cost about $12 billion. With the implementation of projects, Gazprom is looking to expand its gas export routes, especially considering the recent dispute between Ukraine and Russia over gas prices that led to the suspension of gas transportation to Europe for two weeks.

An alternative competing pipeline being backed by the United States and the European Union (EU) is the $7.8 billion Nabucco Trans-Caspian gas pipeline. Construction of the 3,300-kilometer pipeline is scheduled to begin in 2010, and it is likely to become operational in 2015. The new pipeline will connect the energy-rich Central Asian region with Europe after bypassing Russia and passing through Austria, Bulgaria, Hungary, Romania and Turkey with shareholders being major power and energy companies in the transit countries. Shareholder representatives and the EU met recently in Budapest to discuss prospects for the pipeline, which would connect the world's richest gas regions, the Caspian region, the Middle East and Egypt with European natural gas markets. The pipeline's planned capacity is 31 billion cubic meters per year, and its proposed length is 3,300 kilometers.

The Russo-Ukrainian gas dispute and a new contract involving the supply of natural gas have pushed the nations of the EU to intensify discussions and plans to set up an alternative gas supply route to Europe. Currently almost 80% of Russia's gas exports to Europe are transported through Ukrainian pipes. According to experts, the Nabucco pipeline could face problems if Turkmenistan, a major source of natural gas in Central Asia, does not support the project. The EU, too, has not committed itself completely to the project, which is why the project has not yet been finalized despite being proposed in 2002. Also in question is the source of the gas; other than Azerbaijan, no other nation has firmly committed to supply the Nabucco with gas. When completed, the Nabucco pipeline could help reduce the dependence of the EU on Russian gas supplies.

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