South Stream: Let's Make it Happen

In his talk at the first Gas Dialogues event, South Stream: Evolution of a Pipeline, Alexander Syromyatin, Deputy Head of Project Management Department, Gazprom, pointed out a key advantage of the South Stream project: namely, the willingness of the prticipants to make it happen, in contrast to former agreements with Russia's pipeline partners.

Speaking in Sofia, Bulgaria, Mr. Syromyatin explained: "The partner participation excludes any clash of interests between the owner of the pipeline and the owner of the gas reserves, thus minimizing the impact of negative geopolitical changes."

Each country participating in South Stream, he said, was a transit country with a totally different situation. "They are customers and are interested in larger gas transit for the countries after them and mainly they're interested in penetrating the large Italian market."

According to him, an investment survey had been completed last fall to outline the route and establish the configuration of South Stream. He said that the final investment decision had been prepared and the project had progressed to the stage of investment - the investment decision for all land sections had been made, as well as for the maritime section.

"The agreements signed confirm the participants' intentions," he said, explaining that now action plans were being prepared for the start of construction in Bulgaria, Serbia, Slovenia and Hungary. The companies, he said, which would now be focused on survey activities, were now in focus as well as in the area of FID, preparation fo public procurement, selection of contractors and sub contractors for construction works.

"We will also sort out issues relating to provision of funding and we will start the construction of the sections in Bulgaria and Serbia," he said, depicted in his slide. "As you can see, the construction of South Stream started in 2012; on the 7th of December we began the laying of pipes in Russia. In the Black Sea we will start in the second quarter of 2014. The plans are for the first underwater pipeline to be completed by the end of 2015.

"Fifteen and a half billion cubic meters will be supplied to Bulgaria for the country's own needs and will be diverted southward in the direction of Turkey, Greece and Macedonia," he explained.

"South Stream will allow for the setup of alternative routes for gas supplies for Romania, Greece, Turkey, Serbia, Bosnia and Herzegovina. Pipelines from Russia to Europe are going to be extended and the greenhouse emissions will be decreased because natural gas is the cleanest fossil fuel. We think it will have a positive effect for the European economy in general," he added, calling South Stream the biggest investment project of its kind in Europe.

Responding to a query from someone at the forum, he said South Stream would cost EUR 3.3 billion for Bulgaria, because a significant part of the route would be covered by large diameter pipe.

"We are counting on Bulgarian construction companies," he said, "to help us in building the pipeline. We have every interest in contributing to the development of the Bulgarian economy and provide jobs, work for Europe and companies."

As to the question of conducting public procurement tenders if construction were to begin by September, someone pointed out that it was still not sure how Bulgaria was going to finance its share of construction costs, especially once the construction has started.

Mr. Syromyatin said all documentation was in place for the tenders and that tendering would begin very soon. He commented: "Thirty percent of the funds will come from Bulgarian Energy Holding and 70% will be from project financing. Namely, the resource would come from the market. Gazprom agreed to cover the 30%; the 70% outstanding is only waiting for a report to be drafted and then we'll start shopping around."

In terms of the environmental aspects and security of the pipeline, he said these were the highest priorities for Gazprom.

"The project aims to abide by international and national standards concerning the environment," he explained. "Protection of the environment within the project framework is very important for Bulgaria, because we understand perfectly how the pipeline should exit the Bulgarian coast: this is a delicate, protected area. These are beaches and you can believe me that our joint project company, together with Bulgarian Energy Holding, will do our best not to harm the natural systems that are there."

Sections of the pipeline, he showed, would be constructed by joint venture companies, with Gazprom on one side and the respective countries on the other.
He recalled that the South Stream project began in 2007 with the objective of strengthening Europe's energy security.

"We were very well aware that Europe needs new routes, therefore we constructed Nord Stream and now we are constructing South Stream, the pipeline that will directly connect the producers and the customers bypassing transit countries. Here I have in mind Ukraine."

According to him, because it would diversify natural gas routes South Stream would increase security of supply across the European continent and would satisfy additional demand for natural gas, which he said was the most safe and environmentally friendly of the fossil fuels.

"It will be a solid foundation for the development of the power sector in Europe, therefore the diversification of routes is vital for the viability and security of the energy in Europe. The supply of additional quantities of natural gas will give a powerful impetus for the development of the European economy in general."