More twists and turns for South Stream pipeline

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The convoluted saga of the controversial South Stream pipeline has taken new twists and turns in recent weeks, with Gazprom and OMV signing an agreement for the Austrian section, and the government of Bulgaria saying it was suspending work on its section because of pressure from the European Commission.

As June was drawing to a close – and during a visit to Austria by the Russian President Vladimir Putin – Gazprom Chairman Alexey Miller and the CEO of OMV Gerhard Roiss signed a shareholders’ agreement for South Stream Austria GmbH, the project company that will construct the Austrian section of the line.

The pipeline will have capacity of 30-32 Bcm/year and will run from the Hungarian border to the end-point in Baumgarten. The agreement marks final investment decision for the project and includes a “Plan of Activities” for 2014-2016. Construction permits are expected by late 2015, which would allow the Austrian section of the line to be commissioned in late 2016.

New trans-European gas route: "The agreement with OMV marks an important step in establishing this new trans-European gas transmission route,” said Miller. “As early as next year South Stream will offer additional guarantees of reliability and flexibility of Russian gas supplies to European markets.”

CEO, Gazprom Alexey Miller and OMV CEO Gerhard Roiss

Alexey Miller (right) and Gerhard Roiss: all smiles at the signing of the shareholder agreement, but South Stream remains a controversial project, with the European Commission recently launching an infringement procedure against Bulgaria. (Source: OMV)

Roiss commented: “Today´s agreement advances a partnership which has lasted for about 50 years to the next level. Within the South Stream project, Gazprom and OMV are safeguarding the security of supplies for Europe and, particularly, for Austria. This contract cements the role of Baumgarten as a key European gas hub."

The South Stream project involves constructing a pipeline with a capacity of 63 Bcm/year across the Black Sea to southern and central Europe with, says Gazprom, “the purpose of diversifying natural gas export routes and eliminating transit risks”. The pipeline does not run through Ukraine. First gas is due to be be supplied in late 2016, with full capacity being reached in 2018.

The intergovernmental agreement for implementation of the project in Austria was signed in 2010 and the following year Gazprom and OMV established – on a parity basis – the joint project company.

Meanwhile, in the second week of June it was reported that Bulgaria’s prime minister had halted work on the section that Runs through the country, because of an inquiry into the project launched by the European Commission. The commission is concerned about how public contracts were awarded.

Bulgaria’s energy minister, Dragomir Stoynev, told state radio: “If we look at the situation strategically and without emotions, the South Stream project looks irreversible and important for both Europe and Bulgaria. I am convinced that all pending issues will find a solution.”

In remarks at a press conference ahead of the G7 summit in early June, European Commission President José Barroso said: “The Commission will . . . ensure that all energy infrastructure and projects in the European Union, such as South Stream, comply 100% with European rules on energy competition, public procurements, and so on. We have just launched an infringement procedure against Bulgaria which shows that we mean business.”

The project is also seen as controversial because it is going ahead against the backdrop of the Russia-Ukraine crisis – raising geopolitical concerns that trouble the US and the EU.