Mikhail Krutikhin: Stream Dreams

Vladimir Putin attended a groundbreaking ceremony for the South Stream pipeline project on December 7 near the town of Anapa on the Black Sea coast. It could appear everything was in place for the giant infrastructure project, which had been conceived to leave Ukraine without Russian gas transit. But was it? 

For the onshore segment on the Russian soil, the work is already underway. The contracts for pipe procurement, construction jobs and booster stations have been awarded, and Putin was able to witness the welding of two first pieces of the pipeline. Predictably, the contract for the unique Beregovaya compressor station on the shore and some other contracts were given to a company of Arkady Rotenberg, a close associate of the Russian president. 

To deliver 63 billion cubic meters of gas annually to the entrance of the undersea segment, Gazprom must upgrade or build from scratch a comprehensive infrastructure system from the north. Officially, the South Stream begins from the Pochinki booster station in the Nizhny Novgorod Region and reaches the Black Sea 900 kilometers and seven stations later. In addition, a line from the Pisarevka station near Voronezh with three new boosters is also to be built. Gazprom says that these access pipelines and stations will cost about 9 billion euro, but actually gas will be pumped to Pisarevka via another new line from Bovanenkovo and Ukhta. 

According to independent experts, the price tag of the Russian onshore segment may amount to a sum between $15 billion and $20 billion. (Gazprom is trying to show that the South Stream is not too expensive, and formally lists the Beregovaya station and most of the internal pipelines of the project as parts of its regular investments in the national gas supply system.) 

While the gas monopoly can do what it wants on the Russian soil, the fate of the other segments of the project remains unclear. EU officials insist that a final route still has to be submitted to the European Commission for approval, which is going to take at least another year. Marlene Holzner, the spokeswoman for the EU energy commissioner, says that a final investment decision on the South Stream—a phase after all designs and studies have been completed and official approvals are in hand—is not even in sight. 

‘To the European Commission,’ she explains, ‘it has never been communicated that there is a final route. That means where the South Stream starts, where it ends, and which countries the exact route goes through. That has not been done. There is no environmental impact assessment for the whole route. As far as we can see it, we don't regard this as a final investment decision.’ 

In an attempt to sidestep the EU regulators, Russia has signed intergovernmental agreements with each country involved, but the European Commission must see them all before granting its blessings. The deadline for EU states to submit those documents to Brussels is February 16, 2013. The commission then has nine months to assess the agreements and raise its doubts and concerns.

Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.