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Gazprom starts building Europe-bound pipeline

Published on NewsOK Modified: December 7, 2012 at 10:29 am •  Published: December 7, 2012
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The pipeline will go under the Black Sea to reach Bulgaria, Serbia, Hungary, Slovenia, Austria and Italy in one leg, and Croatia and Greece in a second.

With so much free capacity and a largely unchanged client base, South Stream seems to be built with the main aim of securing supplies to its existing European customers. But it will pick up a number of new energy company customers in Serbia and Croatia as it goes through their countries.

"Gas will simply change its direction and flow to the same destinations," said Alexei Kokin of the UralSib investment bank.

South Stream will be able to carry a third of the gas that Europe currently buys from Russia. Investors are concerned that the demand won't be there when the pipeline comes on line in 2015.

But Gazprom's deputy chief executive Alexander Medvedev told journalists that the company has agreements for the entire 63 billion cubic meters, although he refused to specify how firm these agreements are. He also said that one-fourth of the gas supply running through South Stream would be bought by new clients, likely referring to energy companies in Serbia and Croatia.

South Stream was conceived in 2007 after a pricing dispute with Ukraine. The need for the project increased in 2009 after an even fiercer dispute with Ukraine left tens of millions across Europe without gas for three weeks.

Ukrainian leaders are concerned by the project, fearful that it will push the country out of the European energy market and mean the end to the vital proceeds it gets from allowing natural gas to be transported from Russia to European consumers.

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Associated Press writer Maria Danilova contributed to this report from Kiev, Ukraine.