France inks deal with Russia’s Gazprom

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In the presence of French President Nicolas Sarkozy and his Russian counterpart Dmitry Medvedev, GDF Suez and Gazprom signed an agreement in Paris yesterday (1 March) formalising the entry of the French utility to the Nord Stream pipeline project.

The memorandum was signed by Gazprom's management committee chairman Alexey Miller and GDF Suez chief Gérard Mestrallet, according to a statement from the companies.

The two parties agreed to start discussions on supplying up to 1.5 billion cubic metres of additional gas per year to GDF Suez from 2015. The supplies will be shipped via the planned Nord Stream pipeline.

Under the deal, GDF Suez will become a shareholder of Nord Stream AG and hold 9% of the company's capital before construction of the Baltic Sea pipeline starts next month (see 'Background').

"By entering Nord Stream and increasing its gas purchase from Russia, GDF Suez aims at contributing to Europe's security of supply, including North West Europe, where the group is one the major power producers and holds a large portfolio of final power and gas customers," Mestrallet said in the statement.

However, the Russian press reveals difficulties at GDF during the negotiations in acquiring shares in Nord Stream. The French utility is expected to buy 4.5% of the shares of each of the pipeline's German partners, BASF/Wintershall and E.ON Ruhrgas. However, according to a source quoted by Moscow daily Kommersant, no agreement has been reached with Ruhrgas regarding the price of the package.

The source explained that when a similar package was bought by Dutch gas infrastructure company Gasunie last year, the price of the shares had been much lower, as there was more uncertainty surrounding the project at the time.

Additionally, GDF Suez is reportedly requesting that its Russian partners have more say in the Nord Stream project than Gasunie. In particular, the French utility wants to participate in decision-making on smaller gas sale contracts than previously envisaged for 9% participation in the consortium, the source adds.

According to Mihail Korchemkin, head of East European Gas Analysis (EEGA), a consultancy specialising in the Russian gas market, it would be difficult for the two sides to agree on the cost of the package as demand for gas has been dropping along with its price, writes Kommersant.

Maksim Sheyn from Brokerscreditservice (BCS) saw it differently. He claims that shares in Nord Stream have gained value, as in his words the project will start generating profit one-and-a-half years after construction has begun. He estimated that 9% of Nord Stream would cost 750-850 million euros.

The Nord Stream gas pipeline, which aims to bring Siberian gas directly to Germany, bypassing all Russia's 'problematic' neighbours, was awarded its final building permit on 12 February (EURACTIV 12/02/10). Construction is due to begin in April, the consortium announced.

Nord Stream is a planned natural gas pipeline traveling 1,223 kilometres between Vyborg, Russia, and Greifswald, Germany, under the Baltic Sea. Nord Stream is designed to transport up to 55 billion cubic metres of gas per year, enough to supply more than 25 million households. 

Nord Steam is a joint project by four major companies: Gazprom, BASF/Wintershall Holding AG, E.ON Ruhrgas AG and N.V. Nederlandse Gasunie. Gazprom leads the consortium with a 51% stake. 

Since last July, it has been known that GDF Suez, one of the world's largest utilities, is negotiating its participation in Nord Stream (EURACTIV 30/07/10).

The French daily Le Monde wrote that the rapprochement between GDF Suez and Gazprom carried particular significance after France had been ousted from the Nabucco gas pipeline project at the insistence of Turkey. Ankara's move came in retaliation for Paris's opposition to Turkey's EU accession, the French daily wrote.

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