South Stream FID taken; Bulgaria natural gas import costs slashed
The South Stream natural gas project took another step forward on Thursday as a final investment decision (FID) was granted on the two remaining sections of the pipeline that needed approval.
Its chief backer, Russian gas producer Gazprom, signed an investment agreement with Bulgaria, the last country to agree to the construction of the planned 63 billion cubic metre (Gm³)/year pipeline.
The Bulgarian section will span across 538km, with the country's national South Stream project management company finally acceding to its construction. Earlier this week, Gazprom agreed to the FID with Slovenia for that part of the pipeline (see ESGM 13 November 2012)
South Stream will run from Russia under the Black Sea to reach Bulgaria, Serbia, Hungary, Slovenia, Austria and Italy. A second spur, planned to bring gas to southern Italy via Greece, was scrapped last week (see ESGM 9 November 2012).
Gazprom has already established national joint ventures with companies from the other participating countries to manage the onshore section of the South Stream pipeline.
A second milestone was also reached on Thursday when a FID was agreed for the offshore section of the pipeline, which will run under the Black Sea from a compressor station on the Russian coast to Bulgaria. The Black Sea section will be more than 900km long.
"The South Stream contribution to the energy security of Europe cannot be underestimated. It creates alternative and reliable natural gas supply routes to reach our customers," Gazprom chairman Alexey Miller said.
Construction of South Stream will begin on 7 December, and the first supplies for Europe are scheduled for December 2015. Gazprom is a 50% direct shareholder in the South Stream project. The rest is owned by Italy's Eni (20%); Germany's Wintershall Holding (15%) and France's EDF (15%).
Meanwhile, Bulgaria has inked a new long-term gas supply deal with Gazprom, securing a 20% reduction in the process. The Russian company will supply Bulgaria with 2.9Gm³ until 2022, it announced late on Thursday. In keeping with other Gazprom long-term supply deals, oil indexation and take-or-pay obligations will apply.
The deal will initially run for at least six years and the 20% price cut will kick in from 1 January, a Gazprom source confirmed. After six years have elapsed, Bulgaria will have the option to renegotiate the price and quantity of gas supplies for another four years.
The deal is staggered to take account of the likelihood of indigenous production in Bulgaria towards the end of the decade.
Significantly, the structure by which Bulgaria imports Russian gas will also be overhauled, with intermediary parties now eliminated. Bulgaria will now receive gas supplies directly from Gazprom Export.
In the past, Gazprom dealt gas to Bulgarian incumbent Bulgargaz via Overgas and Gazprom Germania. The Overgas deal expires at the end of this year, while the Gazprom Germania deal finished at the end of last year (see ESGM 28 July 2011). JE
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