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By Dr. Theodoros Tsakiris
Russia’s Deputy Prime Minister Igor Sechin, told Kommersant economic daily on 16 March that Moscow is now considering alternatives to the construction of the 900km offshore section of the South Stream pipeline system that aspires to transport, by bypassing Ukraine, up to 63 bcm/y in 2015. "[Russian energy giant] Gazprom and the government are currently studying various options that would allow minimizing expenses while implementing the South Stream project” Sechin noted while underlining that the construction of a major LNG option in the Black Sea “would become an addition or an alternative to the pipeline option”. Russia’s proposal is directly linked to Turkey’s decision to systematically delay its approval for the final environmental permission which is necessary to start the construction of the offshore pipeline that would link Russia with Bulgaria along the seabed of the Black Sea.
Turkish authorities were supposed to have granted their final permit by 31 October 2010 at the latest, “but they didn’t, and they are not putting forward any conditions” Sechin said adding that “We don't understand why they haven't given us permission yet". The major reason behind the Turkish procrastination is Russia’s indecisiveness regarding its withdrawal from the Burgas-Alexandroupolis project and its commitment of 500,000 b/d in favor of the ENI-backed Samsun-Ceyhan pipeline that is still 3 to 3.5 times more expensive than the Greek-Bulgarian option. This indecisiveness has been further aggravated by Transneft’s recent decision to renege its own decision to drop the Burgas-Alexandroupolis project by March 20th if Bulgaria did not pay up its accumulated debt in the Trans Balkan (TBL) Pipeline consortium.
A deadline issued by Transneft Vice President Mikhail Barkov on 17 February (MEES, 28 February), who is also serving as head of the Trans-Balkan Pipeline (TBL), had extended a March 20th ultimatum to the Bulgarian government to pay an outstanding debt contribution of EUR 7.3 mn and approve the revised updated EIAS (Environmental Impact Assessment Study) that was submitted by TBL to Bulgaria’s Environment Ministry in February. When the Bulgarians did not meet this deadline Mr. Barkvov decided to extend the project’s lifeline by at least three more months. On March 20th Barkov told RIA Novosti that despite Sofia’s inability to meet the deadline the company “would be sustained thanks to available liquidity by the Russian shareholders until June [2011]”.
As Russia is considering its options to use the LNG card as a tactical bargaining chip vis-à-vis Turkey and Bulgaria or –in the worst case- restructure the entire project by either (a) bringing Ukraine as a partner or (b) actually building a strategic LNG capacity in the Black Sea, the diplomatic efforts of South Stream have been boosted by the apparent participation of Germany’s largest energy firm BASF/Wintershall in the offshore component of the project.
BASF’s board chairman Juergen Hambrecht signed on 21 March a MoU regarding its participation in the 63 bcm/y South Stream pipeline system noting, following a meetings with Russian PM Vladimir Putin, that “The memorandum of understanding is just a beginning, we will continue the work". BASF’s oil and gas subsidiary, Wintershall, which has entered into negotiations with Gazprom and ENI about its participation in the 900km offshore section (South Stream S.A.) of the South Stream project, already controls 15.5% of the Nord Stream pipeline system, whose first 25.5 bcm/y capacity line will be completed by the end of 2011. Russia’s Deputy Prime Minister Igor Sechin said that Withershall will buy for a total of EUR 2 billion, 15% of South Stream S.A. at the expense of ENI’s current 50% participation rate. ENI controls 50% of the offshore branch even though it has in principle agreed to grant a minimum share of 10% to France’s EDF. A binding MoU was signed in St. Petersburg between ENI, Gazprom and EDF in June 2010 that envisioned the official entry of the French major in the JVC by the end of 2010. MEES understands that it is now it is more likely that EDF’s participation will be finalized by July 2011.

Source: Marcel Kramer, South Stream Europe’s Energy Security: A New Direct Route to the EU, presentation to the European Gas Conference 2011, Vienna, 26/01/2011, p.2.
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