Pipeliners

26 July 2007 - Upstream OnLine - Turkmenistan will remain dependent on Russia as the main conduit for its gas exports and alternative routes to China and Iran are still a long way off, an executive at Russia's gas monopoly Gazprom said today. "It is Gazprom's view that Turkmenistan's new export regions, China and Iran, won't happen in the near future," the official told Reuters on condition of anonymity. Top Turkmen officials visited Beijing last week to sign deals to bring closer their shared goal of exporting 30 billion cubic metres of gas per year eastward to China within the next three decades. The Gazprom official was speaking ahead of a round of talks with Central Asian gas companies in early August to review strategic pipeline options. Representatives from state-controlled Gazprom, Kazakhstan's KazMunaiGas, Turkmengas and Uzbekneftegas will focus on two major gas pipelines at the meeting in the Kazakh capital Almaty. The Trans-Caspian pipeline, which would bypass Russia, would take Turkmen gas under the sea to Azerbaijan and then overland to Europe. The link, with annual capacity of 30 Bcm, is scheduled to go on stream in 2010-2011. The official declined to comment on the viability of the Trans-Caspian project, but analysts have said that Gazprom might want to kill it off as it poses a threat to Russia's monopoly control over Central Asian gas exports to Europe. A second pipeline will also be discussed that would supply 10 Bcm per year of Kazakh and Turkmen gas around the eastern side of the Caspian Sea to Russia. "The main focus of the meeting will be the future of these pipelines and we will of course consider the economic benefits to Gazprom," the official, who has a marketing role, said. Turkmen gas exports are expected to increase substantially over the next three years. After 2010, around 100 Bcm of natural gas will be exported from the former-Soviet country, with most ending up in Russia, he said. Turkmenistan has previously said it plans to increase its sales to Russia - its largest customer - by a quarter this year to 58 Bcm, but has plans to diversify its export routes.

26 July 2007 - Upstream OnLine - Work on a section of the onshore oil and gas pipelines of Russia's Sakhalin 2 project has been suspended on the orders of regional technical watchdog Sakhalin Rostekhnadzor, the agency said today. Sakhalin Rostekhnadzor, which is responsible for industrial safety and environmental protection on the Russian island, said it had halted the work due to violations in pipeline construction across an active seismic fault. Reuters quoted Rostekhnadzor as saying that the Sakhalin Energy consortium operating the project "digressed from project decisions on construction of a drainage system on active seismic faults and used the pipes which were not planned by the project". Sakhalin Energy, co-run by Russia's gas monopoly Gazprom and Shell, said the interruption was linked to routine procedure of getting expert approvals for the project and would not affect the whole project's schedule. "Some improvements were included in the design documentation, and they need to be approved now by independent experts," Sakhalin Energy spokesman Ivan Chernyakhovsky told the news agency. "The expert work is being done at the moment, and we will resume the construction as soon as it is over," he added. Chernyakhovsky said that the section was 800 metres long and work on other sections of the 800 kilometre pipeline was continuing as normal. Rostekhnadzor said the suspension will not be lifted "until Sakhalin Energy rectifies the violations during the drainage system construction". The oil and gas pipelines run in parallel down the length of Russia's remote Sakhalin island off the Pacific coast to a liquefied natural gas plant. The pipelines faced intense scrutiny from Rostekhnadzor and Russia's environmental agency last year. The pressure contributed to a decision by Shell to cede control of the huge project to Gazprom, Russia's state-controlled gas monopoly. Shell's share in the project halved to 27.5% after Gazprom bought a 50% stake from Shell and its Japanese partners, Mitsui and Mitsubishi, which now hold 12.5% and 10% each, respectively. While government pressure has quickly receded after the state-controlled gas giant entered the project, local environmentalists insist that violations are continuing. Last week, a leading geologist claimed that Sakhalin 2 oil and gas pipeline construction work was causing environmental damage. Nikolai Kazakov, deputy director of the Russian Academy of Sciences' Far Eastern Geological Institute, told Reuters inspections conducted in June along the pipelines revealed "the development of hazardous exogenous processes". In a letter to the Sakhalin administration, Kazakov said that "the anti-erosion measures do not ensure the protection of waterways from soil run-off along the oil and gas pipeline route, which has been contaminated by the work of heavy equipment during pipe-laying", Reuters reported The letter also stated that contamination increased as a result of the development of erosion and landslide processes in the mountain slope sections of river and stream valleys. Sakhalin Energy has repeatedly said all project work is strictly in line with environmental regulations.

YUZHNO-SAKHALINSK (RIA No­vosti) - Russia's industrial safety regulator said Thursday it had suspended the construction of a pipeline, part of the giant Sakhalin II oil and gas project in the country's Far East, citing violations. "According to findings, the project operator has deviated from design-stipulated requirements on the drainage system at a tectonic fracture for the Sakhalin II project to develop the Piltun-Astokhskoye and Lun­skoye fields," said Lidia Vostretsova, chief inspector at the local branch of the Federal Environmental, Engi­neer­ing and Nuclear Supervision Agency. Vostretsova said the operator was using the wrong kind of pipes and violating pipe-laying procedures. She said construction would be suspended until the operator rectified the violations. Commenting on the decision, Sakhalin Energy, the project operator controlled by natural gas monopoly Gazprom, said the changes to the original design were necessary to prevent accidents, as the 800-kilometer pipeline was being laid on complex terrain, with seismic fractures, hills and numerous streams. "While building the pipeline in a seismologically hazardous zone near the village of Yasnoye, some technological schemes were improved," a company spokesperson said, adding that independent experts were assessing the improvements. The ambitious project, formerly led by Anglo-Dutch oil giant Shell, experienced months of intense pressure last year from Russian authorities, who accused it of causing serious environmental damage to Sakhalin Island, including deforestation, toxic waste dumping and soil erosion. The dispute was largely resolved when Russia's Gazprom, which acquired a controlling stake in the project last December, and the authorities coordinated in April 2006 a plan to fix the damage. The stakes of the other partners, Royal Dutch Shell, Mitsui and Mitsubishi, halved to 27.5 percent, 12.5 percent and 10 percent respectively as a result of the deal. Sakhalin II has estimated reserves of 150 million tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas. The project also comprises an LNG plant which is due to be launched in 2008, and an LNG export terminal. Most of the LNG from the project will be exported to Japan.

MOSCOW, July 19 (RIA Novosti) - Pakistan wants Russian energy giant Gazprom to play an important role in a project to build a natural gas pipeline linking India, Pakistan and Iran, Islamabad's ambassador to Moscow said Thursday. "We hope that Gazprom will become an important partner both in this project and in other projects to be carried out in Pakistan," Mustafa Kamal Kazi said. He also said Pakistan is ready to make its territory available for oil and gas prospecting and production. "We hope that Gazprom will make use of our proposals," he said. Iran, Pakistan and India agreed Monday on a formula for the price of natural gas to be pumped from gas-rich Iran through the pipeline. The deal removed the main obstacle to the signing of a three-way agreement on building the 2,300 km Iran-Pakistan-India (IPI) pipeline with an estimated price tag of $7.5 billion. The first deliveries are expected in 2011. The price formula is based on the cost of natural gas in Japan, which has been accepted as the most suitable price gauge. Japan is one of the world's largest consumers of natural gas, and has a relatively stable energy market. India and Pakistan are under U.S. pressure not to do business with Iran in the energy sector. But the parties to the project have repeatedly stated their resolve to move forward with the key project, regardless of Washington's opposition.

20.07.2007 - IntelliNews Today - The construction of ESPO oil pipeline, which will run to the Pacific coast was postponed until 2015, deputy industry and energy minister Andrei Dementyev announced on Jul 19. Transneft will complete the construction of the first stretch of the pipeline, which goes from Irkutsk to Skovorodino near the Chinese border next year, the company’s president Semyon Vainshtok said. But the timeframe for second stretch’s building will depend on putting in operation fields in eastern Siberia , which is not expected to happen earlier than 2015. By that time, crude oil production in this region (carried out mainly by oil majors Rosneft, TNK-BP and Surgutneftegaz) is planned to reach 40mn tons annually. The first stretch of the pipeline will have the annual capacity of 30mn tons and the second will 50mn tons capacity. The major part of crude oil in east Siberia will come from Vankor field developed by Rosneft. In H1/07, Rosneft invested USD 1.5bn in exploration works at the field eager to start pumping oil by 2009. By the year-end, the government is to set tariffs for the pipeline’s usage. There are plans to raise the transit tariff from the initial USD 38.8 per ton as the project results to be more costly that it was planned. This money will be charged to transport oil via the pipeline until the border with China . However, according to EconMin German Gref, the price won’t exceed USD 50 per ton because in that case oil transportation through the pipeline will become unprofitable for the companies. Transneft also considers introducing a unified tariff for all the pipelines it operates to compensate the losses from ESPO project.

20 July 2007 - Upstream OnLine - Serbia's plans on expanding its gas infrastructure depend on whether Russian gas giant Gazprom includes it in its South Stream gas pipeline project, an Energy Ministry source said today. "All our plans are on hold until Gazprom decides the South Stream pipeline route," the source told Reuters. "All we can do is keep our fingers crossed and wait." Late last month Gazprom and Italian giant Eni announced plans to build the pipeline to take 30 billion cubic metres of Russian gas per year under the Black Sea to Europe. "If they choose Serbia, then we will not waste effort on a smaller local pipeline," the source told the news agency, speaking after Energy Minister Aleksandar Popovic ended a visit to Moscow where he discussed co-operation with Gazprom. Serbia initially planned an 80 kilometre gas pipeline between Nis in the south and Dimitrovgrad, on the border with Bulgaria. But late last year, its gas monopoly Srbijagas and Gazprom signed a memorandum to look into building an $800 million gas pipeline stretching from Bulgaria via Serbia and Croatia to Italy, that would in part run along the Nis-Dimotrovgrad route. Serbia had hoped the segment through its territory, with a capacity of 20 Bcm per annum, would ultimately be linked to the Blue Stream pipeline from Russia to Turkey under the Black Sea. If joining South Stream fails, Serbia will offer Gazprom to explore other business alternatives, including the construction of underground gas reservoirs, the source said. Serbia has started pumping gas into its sole, 800 million cubic metre, gas storage unit at Banatski Dvor, 40 kilometres away from the border with Romania, but plans to explore other sites for more reservoirs, the source added. "There are at least a couple more sites for storage units, at Mokrin, close to Banatski Dvor, and in central Serbia," the source said. Like most European countries, Serbia faced gas shortages a year ago due to a spat between Gazprom and Ukraine over transport fees. Storage units should reduce Serbia's reliance on gas flows, which come from Russia, via Ukraine and Hungary. Serbia consumes around 10 million cubic metres of gas per day during the winter. The government hopes to clinch €3 billion ($4.14 billion) worth of investments in the energy sector over the next three years, giving Serbia a key role in the transit of electricity, natural gas and crude oil in the region.

20 July 2007  – Upstream OnLine - Russian pipeline engineering player Stroitransgaz placed in full a five-year, 5 billion rouble ($196.7 million) bond at an auction today, an official at one of the issue organisers said. The first annual coupon rate was set at auction at 8.49%, which translates into an effective yield to maturity of 8.67%. The official told Reuters that the issue attracted investor demand of 8.8 billion roubles. The issue is organised by Gazprombank and Troika Dialog. Stroitransgaz, which focuses on engineering oil and natural gas pipelines and fields' infrastructure, is the main building contractor for Russia's gas monopoly Gazprom. Its subsidiary is also building Russia's first oil pipeline to Asia. The company currently has one outstanding 3 billion rouble bond due in June 2008. It also plans to issue a Series 3 bond worth 5 billion roubles and maturing in five years.

19 July 2007 - Upstream OnLine - Russia is on track to open the first 600,000 barrels per day phase of its Asian pipeline next year, but it is unlikely to expand the lnk to its full 1.6 million bpd capacity before 2015 or 2017, Deputy Energy Minister Andrei Dementyev said today. Dementyev told a government meeting that Russia needs to discover more oil in East Siberia to justify the expansion of the pipeline, but once done, it would secure an important share of the Asian-Pacific market. "The Russian share of this market could exceed 6%," Reuters quoted him as saying. Russia hopes the Asian pipeline will make its exports more flexible, but pipeline monopoly Transneft, which is building the $11 billion link, said today that the pricing impact was unlikely to be big. The head of Transneft, Semyon Vainshtok, told the meeting most crude for the Asian pipeline will come from East Siberia, while West Siberian oil will continue flowing toward Europe. "We won't be able to reduce flows to Western Europe and force them to scrap discrepancies in the pricing of (Russia's mainstay oil export blend) Urals," he said. President Vladimir Putin has repeatedly asked the government and oil producers to take steps to sell Urals at a smaller discount to the international benchmark Brent, which is based on North Sea oil grades. But all attempts, including a trial bourse for Russian crude, have so far failed, Reuters said. The first phase of the Asian pipeline had been meant to supply China, but Vainshtok said last week Russia could equally split oil between China and other Asian markets by re-exporting 300,000 bpd from a terminal on the Pacific.

YAKUTIA, July 12 (RIA Novosti) - Transneft [RTS: TRNF], Russia's state-run pipeline operator, has invested 160 billion rubles ($6 billion) in the East Siberia-Pacific Ocean (ESPO) pipeline being built to transport crude eastward, the company's president said Thursday. "To date, we have invested 160 billion rubles," Semyon Vainshtok said. The ESPO pipeline project, with a design capacity of 80 million metric tons (588 million bbl) of crude annually, was launched in April 2006 and is set to transit Siberian oil to the Asia-Pacific market. The pipeline will cover over 4,700 kilometers (2,900 miles), and is being built in two stages. At the first stage, a 2,757-kilometer (1,713-mile) section will be built with a capacity of 30 million tons (220.5 million bbl) of oil per year. The project's first leg is estimated at $11 billion and will be commissioned in December 2008. It will link Taishet, in East Siberia's Irkutsk Region, to Skovorodino, in the Amur Region, in Russia's Far East. The second leg will stretch for 2,100 kilometers (1,304 miles) from Skovorodino to the Pacific. It will pump 367.5 million barrels of oil annually. The second stage also envisages an increase in the Taishet-Skovorodino pipeline's capacity to 588 million barrels. Vainshtok also said crude from West Siberia would not be pumped through the ESPO pipeline, as East Siberian oil would be enough to fill the pipe. "Fears about fulfilling the pipeline capacity have not materialized," Vainshtok said. "We have already received orders for 36 million tons of oil [264 million barrels] from East Siberia," he said. Vainshtok also said Transneft had already built 1,000 kilometers (621 miles) of the ESPO pipeline, or more than a third of the project's first stage, adding that the company had reached the planned level of building 5 kilometers (3.1 miles) per day. Transneft and Russian energy giant Gazprom have set up a working group to discuss the construction of a gas pipeline along the East Siberia-Pacific Ocean oil pipe project, adding that his company was prepared to provide consulting assistance to the gas monopoly. The construction of a gas pipeline to run parallel to the ESPO project is conditioned by the structure of hydrocarbons at East Siberian deposits that are rich in petroleum associated gas and condensate. Vainshtok also said Transneft would convene a meeting of Caspian Pipeline Consortium shareholders July 19 to discuss issuing $5 billion worth of Eurobonds and raising tariffs. "So far, our proposals have not been accepted, but we will convene an extraordinary shareholders meeting July 19," he said. At a shareholders meeting July 5, Transneft, which holds a 24% stake in the international consortium pumping Russian and Kazakh oil to a terminal on the Black Sea, proposed the Eurobond issue to restructure the consortium's debt. Shareholders are to examine the proposal and make a decision within 10-14 days, but they declined to back the proposed rise in transportation tariffs from the current $24.60 to $38 per metric ton of oil.

BEIJING, July 10 (RIA Novosti) - The capacity of a Chinese leg of the East Siberia-Pacific Ocean pipeline (ESPO) could reach 30 million tons (220 million bbl) a year, Russia's industry and energy minister said Tuesday. "There is an opportunity to build a Chinese leg from Skovorodino [in the Russian Far East] as part of the project," Viktor Khristenko said. "At the first stage its capacity could amount to 15 million tons (110 million bbl), and if the entire system is developed the capacity could hit 30 million (220 million bbl)." The ambitious East Siberia-Pacific Ocean oil pipeline, managed by state-run oil pipe operator Transneft, is slated to pump up to 1.6 million barrels per day of crude from Siberia to Russia's Far East, which will then be sent on to China and the Asia-Pacific region. Khristenko said Transneft and China National Petroleum Corporation were cooperating successfully in designing the pipeline branch from Skovorodino Bay to the border with China, adding that the construction could begin in 2008. During the first stage of the project's implementation, oil will be pumped from Taishet, in the East Siberian region of Irkutsk, to Skovorodino, in the Amur Region, in Russia's Far East, where it will be reloaded onto railway tankers for delivery to Kozmino Bay on Russia's Pacific Coast. The second stage will involve the construction of a Skovorodino-Kozmino pipeline, to pump 367.5 million barrels per year, and an increase in the Taishet-Skovorodino pipeline's capacity to 588 million barrels. To date, Transneft has built 940 kilometers (584 miles) of the ESPO pipeline, whose total length is more than 4,770 kilometers (2,965 miles). Earlier, Transneft CEO Semyon Vainshtok said a branch to China would cost $436 million.

ZAVIDOVO (Tver Region), July 9 (RIA Novosti) - President Vladimir Putin issued instructions Monday to look at ways of bringing Uzbekistan into a project to build a gas pipeline along the Caspian coast. "It [the matter] should be taken up with [our] Kazakh friends, as well as with Turkmenistan [who participate in the project], Putin told First Deputy Prime Minister Dmitry Medvedev at a Cabinet session. The matter was raised following a report by the other first deputy prime minister, Sergei Ivanov, on his recent visit to Uzbekistan. "As far as I could see from your report, Uzbekistan is on the whole favorably disposed toward the idea of joining the Caspian gas pipeline," Putin said. Ivanov said he had discussed energy matters in detail with Uzbek authorities, in particular the creation of a second branch line with a capacity of 20 billion cubic meters a year. Russia, Kazakhstan and Turkmenistan agreed, in May, to build a gas pipeline along the Caspian coast and will sign the deal by September. The pipeline will run from Turkmenistan along the Caspian coast of Kazakhstan and onto Russia, the sole re-exporter of the Turkmen gas. It is a rival project to a U.S.-sponsored Trans-Caspian pipeline under the Caspian Sea to carry Turkmen gas to southern Europe bypassing Russia. Following their summit in Turkmenistan, Vladimir Putin, Nursultan Nazarbayev, and Gurbanguly Berdymukhammedov directed their governments to start the construction of the pipeline in the second half of 2008. Putin said earlier the new project and the restoration of Soviet-era Central Asian pipelines leading to Russia would make it possible to increase transportation by at least 12 billion cubic meters by 2012. Alexei Miller, the chief executive of Russian energy giant Gazprom [RTS: GAZP], said the two projects would help increase supplies of Turkmen gas to 80 billion cu m a year within the Russia-Turkmenistan contract until 2028. In September, Russia and Turkmenistan agreed on terms of Turkmen gas supplies for 2007-2009 at a price of $100 per 1,000 cu m and set the volume at 50 billion cu m a year. Despite the agreement on the Caspian pipeline, Turkmenistan's president, however, said that the Trans-Caspian project bypassing Russia remained on the agenda.

29 June 2007 - Upstream OnLine - Russian gas monopoly Gazprom and its two German partners in the Nord Stream pipeline project are considering inviting Dutch company Gasunie to join the venture, a senior Gazprom official said today. Gasunie could acquire up to 9% of the project to build a gas pipeline from Russia to Germany by taking a 4.5% stake from both BASF and E.ON, Gazprom deputy chief executive Alexander Medvedev said. "Shareholders in the project will meet on 12 July and discuss signing an agreement on Gasunie's entry to the project," Reuters reported Medvedev told reporters. Gasunie is the Dutch national gas grid operator. Gazprom owns 51% of Nord Stream, a planned gas export pipeline from Russia under the Baltic Sea to Germany. E.ON and Wintershall, part of BASF, each own 24.5%. Gazprom would receive a 9% stake in another Dutch firm, BBL Company, which is building a gas pipeline linking the Netherlands with Britain. Gasunie owns 60% of BBL, with E.ON Ruhrgas and Belgium's Fluxys owning 20% each. Gazprom and Gasunie would pay cash for their respective stakes.

// Private Caspian shareholders reject all Transneft proposals
July 04, 2007 - Kommersant by Dmitry Butrin - A shareholders meeting of the Caspian Pipeline Consortium yesterday rejected all proposals made by Transneft, which represents the Russian package of shares in the CPC. Not even Kazakhstan was satisfied by Transneft Finance head Murod Mukhamedzhanov's proposal to restructure CPC debt by raising fees higher than the previously stipulated $38 per ton pumped and issuing Eurobonds for $5 billion. Transneft may making firmed statements today. Mukhamedzhanov has already said that rejecting his proposal threatens the CPC with bankruptcy. The two-day CPC shareholders meeting began today at the Marriott Grand Hotel in Moscow. The CPC is the only private trunk pipeline in Russia. It connects oil deposits in Kazakhstan with ports in Novorossiisk. The shareholders meeting reached a dead end on its first day. Transneft, which took over management of the 24 percent of CPC stock in the possession of the Federal Property Management Fund (Rosimushchestvo) only last month, managed to attract only LUKArco to its side. The private shareholders in CPC voted together against all Transneft and Rosimushchestvo initiatives to improve the financial position of the consortium and reform its management. Kazakhstan, which holds 19 percent of the shares in it abstained from voting. Two sources in CPC member organizations confirmed this information about the outcome of the first day of the meeting. Official information will be made available only on July 4 by agreement of all shareholders. Transneft confirmed yesterday only that the basic proposals on the agenda were not approved and discussion will continue today. There were three key questions on the agenda: raising the fee on the CPC from $24.6 to $38, lowering the interest rate on credits to the CPC from private shareholders from the current 11-12 percent to 4-5 percent (oriented to the LIBOR rate) and altering the charter of ZAO CPC-R, the Russian legal entity of the consortium, to bring it into line with Russian law by eliminating the rule about deciding key issues in the consortium unanimously and creating a board of directors for CPC-R. General director of OOO Transneft Finance Murod Mukhamedzhanov laid out the Transneft proposals at greatest length. He explained that Transneft sees the rise of the fee to $38 as only the first raise and stated that the consortium's debt of about $5.5 billion must be restructured. He proposed issuing CPC Eurobonds for about $5 billion to do so. Only then, Mukhamedzhanov explained, could the project to increase the capacity of the CPC from 30 million tons to 56 million tons of oil pumped per year. Rosimushchestvo and Transneft prepared a new memorandum on Russian proposals for expanding the CPC before the shareholders meeting. With the exception of one concession, resolving CPC issues on the basis of English law, the memorandum, which Kommersant has obtained a copy of, was identical to Transneft's positions. In particular, the memorandum proposes to consider the fee of $38, which was set as the upper limit in the CPC shareholders' founder's agreement, be considered as without account for inflation. That would make it possible to raise the fee to $50-55. The private shareholders in the CPC voted together against Transneft's harsh moves with the exception of LUKArco, an independent enterprise of LUKOIL and BP. A LUKArco spokesman suggested raising the fee to $38 for 12 months a compromise measure. That suggestion was supported by Chevron (15% of shares), but voted down by ExxonMobil (7.5%), BG Group (2%) and ENI (2%). Chevron's initiative to form a working group to conciliate the thorny issue was also rejected. That was predictable. CPC general director Vladimir Razdukhov stated at the beginning of the meeting that consultations on the Rosimushchestvo memorandum “did not produce results.” Transneft may make good on its threat to initiate the bankruptcy of the CPC after the meeting ends. Today is its last day, but there are no more substantial matters planned than hearing Razdukhov's report and confirming the consortium's results for 2006. CPC sources say that Transneft may begin lobbying to have CPC-R included on the register of natural monopolies of the Russian Federation. They say that, with government support, that could take place in August. That would settle only the question of the fee, since then the Federal Tariffs Service would set it. The issue of CPC debt can be solved only by lowering the interest rate on its credits or by its bankruptcy. The Russian government would not have the majority on the creditors committee. The CPC's debt to private creditors is significantly larger, even taking into account tax claims of up to $500 million that the Russian Federal Tax Service is expected to make after a new audit of 2005 and 2006.

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - Gazprom is continuing to offer new pipeline routes to its customers in the European Union. Late in June, the Russian gas monopoly and Italy's Eni made a preliminary agreement to lay the South Stream pipeline under the Black Sea, and on across Bulgaria and Greece to the Apennines in Italy. The Russian mammoth will not necessarily make a lot of money on the project. Geopolitical rather than economic factors are the chief motivation. Now that it is interested in entering southern Europe, Gazprom has chosen to work with the Greeks and Bulgarians, who have been culturally close to Russia for centuries, and Eni, its long-standing partner. The new project calls into question Turkish plans for transporting gas under the Caspian Sea to Europe. Eni and Gazprom representatives met in Rome on June 23 to sign an agreement on the ambitious South Stream project, estimated at 10 billion euros. The pipeline will run from the Russian Black Sea coast underwater to the Bulgarian shore, on across Bulgarian and Greek dry land (the route will probably lie parallel to the Burgas-Alexandropoulos oil pipeline, which Russia is involved in building) and under the Adriatic to Italy's south coast. The South Stream may eventually have branches from Bulgaria to Slovenia and Austria-and possibly additional offshoots to Italy. At the Balkan energy summit in Zagreb, Croatia, the day after the memo was signed, President Vladimir Putin stressed that the South Stream was meant to help Europe meet its consumers' demand for gas. True, if the project is implemented, it will give the European Union greater confidence in gas supplies from Russia. The South Stream is the result of Gazprom's policy of the last two years. The company's goal has been to bypass Ukraine, Belarus and Poland in supplying gas to Western Europe. Gazprom recently made a spectacular about-face: it previously charged Ukraine and Belarus far less than Western European countries, but also paid only token fees for gas transit. The arrangement failed time and again because each party preferred getting hard cash to swapping discounts. Ukraine and Belarus raised transit fees as soon as Gazprom increased gas prices. There were heated disputes with Ukraine in the winter of 2005/06 and with Belarus the next winter-it is Gazprom's custom to announce price rises a few days before the new year, when it renews contracts. Western Europeans watched with bated breath-arguments with neighbors made Gazprom cut supplies, so Italy and Germany were not getting the amount of gas agreed in their contract. Meanwhile, Gazprom was hatching plans for new Western-bound pipelines to bypass Ukraine and Belarus. First came blueprints for the North European Gas Pipeline (NEGP), which would run under the Baltic from the coast of Russia to Germany. The NEGP did not need any transit countries. There was only one problem - bypassing Estonian territorial waters. Unlike the NEGP, the South Stream cannot avoid land transit. But then, Gazprom hopes-with good reason-that Bulgaria and Greece will welcome the chance to open Europe's southern gates to Russian gas, especially considering all the foreign investment that is almost certain to pour in. Still, Gazprom will have to untie its purse strings for its new transit countries, to say nothing of the South Stream's exorbitant construction costs. So the project's feasibility is doubtful, because there is a way to increase Russian gas supplies to Italy and the Balkans at a much lower cost-by extending available routes and increasing their capacity. There is the Soyuz, the largest of the functioning Russia-Western Europe gas pipelines, and the Blue Stream, which runs under the Black Sea from Russia to Turkey, and a branch could be built to Europe relatively cheaply. European Union countries, meanwhile, are wary after all they have been through because of Russian gas disputes with Ukraine and Belarus. So they welcome projects like the NEGP and the South Stream-they will have a far greater chance of securing full and uninterrupted deliveries thanks to new routes and suppliers. That is the belief of the European Commission, in any case. To Russia, the geopolitical factors matter most. Disappointed with Ukraine and Belarus, whom it considers ungrateful neighbors, it wants closer ties with Greece and Bulgaria, its Balkan allies for centuries. There is also the Gazprom-Eni strategic partnership to think about. The Italian concern stands much to gain from its relationship with Gazprom, especially after it lucratively subcontracted the Blue Stream effort. Gazprom has scanty experience with underwater pipeline construction, so Eni is certain to do the lion's share of the South Stream job, which the Russian partner will generously pay for. Turkey is the underdog of the affair. Its plans to join hands with Gazprom on the Blue Stream branch to Europe have certainly been put off indefinitely, if not buried altogether. The South Stream also casts doubt on the Nabucco pipeline project, which is intended to transport Caspian gas to Europe via Turkey. The South Stream, however, is still in its embryonic stage. Feasibility studies alone will take a year and a half. Experts have not ruled out that the project will be found unprofitable. Then, we must not forget the close competition involving not only operating but also planned pipelines in worldwide oil and gas geopolitics. The South Stream idea might have been proposed merely to dampen some of the excitement surrounding the Nabucco.