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Gazprom sees Nord Stream 2 supplying Southeast Europe

Nord Stream 2 could be a source of supply to Southeast European countries as well as existing target markets, Gazprom's press service said late Thursday, citing CEO Alexei Miller.

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Expansion of Nord Stream, which ships Russian gas to Germany via the Baltic Sea, is part of a strategy by Gazprom to increase its export options to Europe in a bid to bypass Ukraine, where political and commercial disputes as well as the recent armed conflict have fueled fears that shipments to Europe could be disrupted.

Southeast Europe is currently the region most exposed to the risk of a halt to Russian gas shipments via Ukraine. The EU's decision to block South Stream and ongoing uncertainty over the TurkStream project have added to concerns in the region over security of future gas supplies.

Asked what the company sees as its target markets for Nord Stream 2, Miller said: "First of all our biggest markets, such as Germany, France and Italy, as well as the Baumgarten gas hub." He added that via Baumgarten, supplies from Nord Stream 2 could be directed to Southeast Europe.

The expansion project, expected by the end of 2019, would double current capacity to 110 Bcm/year through the construction of a third and fourth underwater line.

Gazprom said Miller also met German Vice Chancellor and Minister for Economic Affairs and Energy Sigmar Gabriel on Thursday, to discuss the project as well as development prospects for the European gas market.

In recent years decisions over gas infrastructure projects have proven controversial in Europe, where legislation aimed at reducing Russian control of gas supplies, and conflicting national interests, have combined to create a lack of consensus among European countries of which infrastructure projects should be approved.

With the demise of South Stream, Turkey has emerged as a potentially key transit country in future gas supplies from Russia to Europe. The TurkStream project, if implemented, would add to capacity at the Blue Stream and Transbalkan pipelines, which currently ship Russian gas to Turkey.

Miller said a final decision on additional capacity of the Blue Stream pipeline has not yet been taken. "We have not taken any final decisions, but at least 2-3 Bcm/year of gas [planned to be shipped via Blue Stream] will be sent via TurkStream," Miller said.

Blue Stream, which runs under the Black Sea, has a current capacity of 16 Bcm and can supply almost one third of Turkey's fast-growing gas demand.

Gazprom agreed on a 3 Bcm expansion to Blue Stream's capacity toward the end of last year, but now it looks like only 1 Bcm of capacity will be added to the line.

Gazprom also delivers gas to Turkey under a 4 Bcm/year supply contract with state-owned importer Botas via the Transbalkan line. Seven private companies also hold contracts allowing them to import collectively up to 10 Bcm/year via the Transbalkan line.

The proposed TurkStream project is set to have a significant impact on Russian deliveries to Turkey, although it continues to suffer from teething problems.

Time frames and volumes for the project remain unclear, with Gazprom officials recently indicating that capacity will now be 32Bcm/year -- half of the original plan -- and that project launch may be delayed by a year to late 2017.

Gazprom indicated that the possible delay is linked to political uncertainty in Turkey, where a temporary government is in place and elections are due to be held on November 1. Ratification of an inter-government agreement on the project has been delayed until the new government is formed.

The conflict in Syria could also play a key role in inter-government negotiations, with Russia now actively engaged in the war there, which has led to some criticism within Turkey.

Turkish Prime Minister Tayyip Erdogan criticized Russia for incursions into Turkish airspace during its campaign, warning that Turkey could look elsewhere for cooperation on gas and nuclear power projects if necessary, local media reports said.

--Rosemary Griffin,
--Edited by Jonathan Fox,