Russian gas export monopoly Gazprom signed a deal with the state-owned Hungarian Development Bank to build part of the South Stream pipeline, a 10 billion euro ($12.7 billion) project that would bypass Ukraine in delivering gas to Europe.
Moscow supports the project, saying it would lower the risk of supply disruptions similar to those that followed its dispute with Ukraine over gas payment in January.
Russia, supplier of a quarter of Europe's gas, and some customers in Europe want to accelerate the construction of gas supply routes to bypass Ukraine. Some consumers are also eyeing alternatives that would cut dependence on Russian gas.
Putin, announcing the deal after a meeting with Hungarian Prime Minister Ferenc Gyurcsány, told reporters Russia had sufficient gas reserves to meet its own growing demand and that of Europe for about 100 years.
He said the rival Nabucco project, which would bypass Russia in pumping up to 31 billion cubic metres of gas from the Caspian Sea region to Europe, would not be possible "without the participation of Iran in the project". Nabucco has so far received scant financial commitment and has only a fifth of the gas commitments needed to be viable.
Iran, as well as ex-Soviet states Turkmenistan and Uzbekistan, is a potential supplier of gas to the pipeline, but the standoff between Washington and Tehran over Iran's nuclear programme makes this awkward for Nabucco's European backers.
Hungary's prime minister said the country was interested in diversifying its energy sources.
"Hungary is not interested in there being one gas pipeline or one oil pipeline," Gyurcsány told reporters. "Hungary is interested in having as many pipelines as possible."
Gas storage
Gazprom, which supplies about 70 percent of Hungary's gas imports, said the South Stream agreement envisaged a 50-50 joint venture to build the Hungarian leg of the pipeline.
The company's export arm also signed a deal with Hungarian oil and gas firm MOL to build an underground storage facility in Hungary to hold 1.3 billion cubic metres of gas, with daily extraction capacity of 15 million cubic metres.
Gyurcsány said the new facility, which will be owned equally by Gazprom and MOL, would allow Hungary to increase gas storage to the point where it could supply half of its annual demand.
MOL said in a statement that construction would begin after 2010 and the facility should come on stream by 2012-2013. The start date means it will not affect MOL's capital expenditure in 2009, which it has said will be cut by 35 percent. MOL is also a shareholder in the Nabucco project, along with Austria's OMV, Romania's Transgaz, Turkey's Botas, Bulgaria's Bulgargaz and Germany's RWE.
The Russian-backed South Stream pipeline, a project also involving Italian energy firm Eni SpA, promises to be even bigger. Gazprom said in January it might increase the planned capacity to 47 billion cubic metres from 31 billion.
Putin said the cost could fall from the 10 billion euros envisaged now due to lower prices for construction materials. "There are no problems with financing," he said.
Gazprom Chief Executive Alexei Miller said the pipeline should be ready before 31 December 2015, and a feasibility study of the entire route is expected by June 30 next year.
"Due to the recent well-known events (in Ukraine), our customers are expressing the opinion that we should study the possibility of boosting gas transit via South Stream," he said, adding: "The problem of transit countries is a key problem in ensuring Europe's energy security."
(EurActiv with Reuters)
_stack2.jpg){kind=small}
