Gazprom: 'Winter proves need for South Stream'
On 15 February, Russian energy monopoly Gazprom said that will make a final investment decision on the South Stream gas pipeline project across the Black Sea to Southern and Central Europe, bypassing Ukraine, in November this year.
Gazprom CEO Alexei Miller held a meeting to discuss implementation of the South Stream project. “This winter is another confirmation that South Stream should and will be built,” Miller told South Stream CEO Marcel Kramer and other project officials.
Russian Prime Minister Vladimir Putin has stressed that if South Stream were in place already, Gazprom would not have any problems with fully supplying European demand, unlike what has been seen during this peak season and cold weather since the beginning of February.
The recent cold snap in Europe may perhaps expedite a decision on South Stream, Moscow-based oil & gas analyst at Alfa Bank Maria Yegikyan told New Europe on 16 February. “With additional export capacities through the South Stream pipeline, Gazprom could fulfil all nominations, not part of them as we have recently seen,” she said.
Gazprom said that it plans to double its underground storage capacity in Europe to meet demand spikes. “It’s necessary because storage is a key instrument to the security of supply for extreme situations like this winter, because we cannot predict such a winter will not repeat next year or in the next five years,” Gazprom Deputy CEO Alexander Medvedev said.
The Russian gas giant has already approved the investment of up to €300 million in the project, he added. “[The] European market is still very fragmented” and another important measure to “improve the comprehensive gas-supply system in Europe and thus enhance energy security is investment in the Nord Stream and South Stream pipelines and other local gas interconnections."
Recently, a record cold snap boosted demand for Russian gas in Europe by 45% above the average winter level and the Russian company failed to meet it.
Regarding recent speculation on Gazprom supply cuts to Europe, Alfa Bank’s equity research analyst Yegikyan said: “Our view was that the nominations of the European customers were extremely high and Gazprom was unable to supply them in full volume due to high demand for gas domestically due to cold weather in Russia.”
Following Gazprom’s presentation on the investor day, the company disclosed that the company is guiding for around 154 billion cubic metres of gas export to Europe in 2012. This is higher than the 2011 exports of around 150bn cubic metres, so the company is actually guiding higher exports to Europe in 2012 and that excludes former Soviet Union countries (FSU) sales.
This volume is subject to changes within the year but at this point the company is aiming for 2.6% y/y growth.
In November 2011, Russia commissioned the Nord Stream pipeline on the bed of the Baltic Sea, with the first stage annual capacity of 27.5bn cubic metres. The capacity is expected to double by year-end, when the second stage is expected to be launched. South Stream is designed to carry around 63bn cubic metres of gas a year via the Black Sea starting from 2015.
Gazprom is also eyeing future Arctic energy riches. “Gazprom has ambitious Arctic plans, though the Shtokman project is still awaiting a final investment decision. The South Stream pipeline is not dependent on their realisation, however,” Yegikyan said.
At the South Stream meeting on 15 February, Miller approved the Rules of the South Stream construction. The document details the entire volume of works for the offshore and onshore parts of the project.
"We have entered the stage of the actual construction of South Stream. Without exaggeration I can say that Gazprom is working on the project 24 hours a day. This abnormally cold winter, which caused a sharp increase in demand for Russian gas in Europe, is another confirmation that South Stream must and will be built. Europe needs new corridors for Russian gas supplies, without transit intermediaries," Miller said.
Julian Lee, senior energy analyst at the Centre for Global Energy Studies (CGES) in London toldNew Europe: “South Stream now is very much a project to put pressure on Ukraine. There is infrastructure across Ukraine. Gazprom, for obvious reasons, would like to control this infrastructure. It wants to be able to deliver its gas to Europe through pipelines that it owns and not to have to worry constantly about sometimes difficult relations with transit countries.”
Russia's past conflicts concerning gas supplies and transit terms with Ukraine resulted in cuts to European consumers in 2006 and 2009 - and Ukraine has again been asking Russia to lower its gas prices. For its part, Russia wants to control the Ukrainian gas transport system (GTS).
“If Ukraine were to suddenly turn around and give Gazprom a controlling interest in the Ukrainian pipeline system at reasonable price, Gazprom may well decide that South Stream in unnecessary. But I think in the absence of such an offer from Ukraine, South Stream probably will go ahead,” Lee said.
Yegikyan added that the implementation of South Stream “also depends on negotiations with Ukraine but as both Prime Minister Putin and several representatives of Gazprom said South Stream is going to be put in place no matter what the outcome of Ukrainian negotiations, with the capacity of the projected pipeline remaining the only variable”.
Finally, defying severe frosts, FEMEN activists have staged a provocative stunt against Gazprom in Moscow. Risking nipple frost bite, Ukrainian girls took off their clothes in front of the Russian gas giant’s headquarters, baring their breasts and holding banners saying 'Stop gas racket!' and 'Snub Gazprom!'
In this way, the girls said they were voicing their protest against “Vladimir Putin’s gas moguls from Gazprom manipulating European countries that depend on Russia’s gas supplies”.
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