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Russia, Bulgaria sign final investment decision on South Stream gas pipeline

Russia's Gazprom and Bulgaria's Energy Holding EAD Thursday took thefinal investment decision on the construction of the South Stream gaspipeline via Bulgaria, finalizing the process of taking FIDs for all sectionsof the route.

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The document was signed by Gazprom CEO Alexei Miller and EAD's executivedirector Mihail Andonov in the presence of Bulgarian Prime Minister BoykoBorisov, Gazprom said in a statement.

Earlier Thursday, the partners in the subsea section of the pipeline --Gazprom (50%), Italy's Eni (20%), France's EDF (15%) and the energy unit ofGermany's BASF, Wintershall (15%) -- inked the FID to build the underwaterpipeline.

Serbia, Hungary and Slovenia have already taken the FIDs on theirsections of the pipeline.

The South Stream pipeline is to carry up to 63 billion cubic meters/yearof Russian gas across the Black Sea to Bulgaria, from where it will go toSerbia-Hungary-Slovenia and on to northern Italy.

Two offshoots could be built to Bosnia-Herzegovina and Croatia. The project will include four parallel lines of 15.75 Bcm/year capacityeach, with the first commercial deliveries scheduled for late 2015. Gazpromexpects to build the second and third lines by the end of 2016.

A fourth line is scheduled to follow by the end of 2017.

Gazprom estimates the 925 km (573.5 mile) subsea section will cost Eur10billion ($12.81 billion) at 2010 prices, Alexei Serebryakov, first deputyhead of Gazprom's project management department said Friday.

The investment needed for the 1,455 km onshore section in Europe,including eight compressor stations, is estimated at Eur6 billion,Serebryakov said.

Serebryakov specified that Gazprom expects to finalize the investmentestimates in current prices after all the tender procedures are completed,expected in 2013. "So far, the estimates do not seriously differ from those[announced]," he said.

The land sections will be built by Gazprom in cooperation with localcompanies.

Construction of onshore infrastructure on the Russian Black Sea coast isscheduled to start on December 7.

Supply contract with Bulgaria

Separately, Gazprom and the Bulgarian government signed a new gas-supplycontract, "which stipulates the supply of 2.9 Bcm of gas per annum until 2022along the traditional transportation corridor and via the South Streampipeline, once it is commissioned," Gazprom Export said in a statementThursday.

The deal retains "the principle of long-term contracts with oilindexation and the take-or-pay obligation. This mechanism has set theconditions for gas consumption increase in Bulgaria," the Gazprom Exportstatement said, citing CEO Alexander Medvedev.

Borisov said the deal involves a 20% price discount starting fromJanuary 1, Bulgarian news agency Novinite reported.

Under the new contract in the sixth year Bulgaria will have theopportunity to renegotiate the price and the quantity of gas supplied,Novinite said.

The current contract, under which Gazprom supplied up to 3.1 Bcm of gasto Bulgaria, expires at the end of this year.

In 2011, Gazprom delivered a total of 2.81 Bcm to Bulgaria, whichrepresented a 6% increase from 2010.

--Nadia Rodova, nadia_rodova@platts.com
--Edited by Jonathan Dart, jonathan_dart@platts.com