Putin and Berlusconi seal ‘South Stream’ pipeline deal

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Italy’s Eni and Russian state-owned firm Gazprom signed agreements on the South Stream gas pipeline project on 15 May, just days ahead an EU-Russia summit later this week where Europe will attempt to speak with a single voice on foreign energy relations.

Russian Prime Minister Vladimir Putin hosted his Italian counterpart Silvio Berlusconi at the Black Sea resort of Sotchi to mark the event. 

Both oversaw the signing of the agreement between Gazprom and Italy’s Eni, which will more than double the capacity of South Stream, from 31 billion cubic metres per year (bcm/y) to 63bcm.

Commenting on the forthcoming EU-Russia summit in Khabarovsk on 21-22 May (EURACTIV 14/05/09), Putin, who has excellent personal relations with Berlusconi, said he would like to have as good relations with the EU as with his Italian guest. 

In return, Berlusconi stated that Russia was a “friendly” country that kept its promises as a gas supplier. The Italian leader also advised the EU to cultivate the same kind of good relations that Rome enjoys with Moscow. 

On the sidelines, Gazprom signed deals with Eni of Italy, DESFA of Greece, Serbija Gaz and a Bulgarian energy holding. Gazprom chief Alexei Miller said that the decision to boost the capacity of South Stream was taken following a request from the Italian side. 

South Stream has now entered the construction phase, Miller indicated, adding that the project would be completed by the end of 2015 at the latest. The cost of the pipeline will be 8.5 billion euros, he specified. 

In Sotchi, Putin alluded at the EU’s rival Nabucco project and questioned whether there would be gas available to fill the pipeline. 

“For starters, before investing billions of dollars in a pipeline, burying the money in the ground, they need to understand where the gas will come from for this pipeline,” Putin said, according to the Russian government website. 

In the meantime, the press reported that Russia is ready to buy all the gas from a large offshore development in Azerbaijan, known as Shah Deniz II. 

Europe’s hopes of securing gas from Azerbaijan via Nabucco were recently further dampened (EURACTIV 20/04/09) when the country’s president, Ilham Aliev, said he wanted Russia to serve as a transit route for selling gas to Europe. 

Some economists questioned the logic of a Russia-Azeri deal on Shah Deniz II. "For Gazprom, buying Azeri gas for the short or long-term does not make any sense," said Mikhail Korchemkin, managing director of East European Gas Analysis, quoted by the Bloomberg news agency. 

"Apparently the [Russian] government considers spiting Nabucco a higher priority than maximising budget revenues and profits of Gazprom," he continued. "It does make sense for Azerbaijan to sell spare gas to Russia until Nabucco is built," Korchemkin explained. 

The Russian daily Kommersant wrote today that the decision to double the capacity of South Stream is aimed at depriving Nabucco of "even the slightest hope" of secure gas resources. 

Furthermore, Kommersant writes that if both South Stream and Nord Steam pipelines are completed as planned, their joint capacity of 118 billion cubic metres would exceed the volume of Russian gas transited through Ukraine in 2008. 

Until now, Nabucco and the Russian 'South Stream' project's capacities were considered to be of identical capacity (30 billion cubic metres a year). Both bypass Ukraine and use approximately the same resources (Central Asian and Caspian gas). 

'South Stream' runs directly through the Black Sea from the Northern Caucasus shore, while Nabucco runs through Turkey from the borders of the Southern Caucasus. Their commissioning terms are nearly identical too. 

A branch of the planned South Stream pipeline is expected to run through Serbia and Hungary to Austria, ending at the Baumgarten gas storage facility. In January 2008, the Austrian energy company OMV and Gazprom had signed a deal to turn the Baumgarten trading platform into a 50%-50% joint venture. 

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