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SUBJECT:The outlook for the South Stream pipeline.
SIGNIFICANCE:The signing in late June by Russian gas monopoly Gazprom and Italy's Eni of a memorandum of understanding on the construction of the South Stream pipeline paves the way for opening up a new route to supply Europe with gas. Moscow's aim is to ensure security of supply for its own gas to Europe, while undermining the EU-supported Nabucco pipeline.
ANALYSIS: The planned South Stream gas pipeline will extend 900 kilometres (km) from Russia along the floor of the Black Sea to Bulgaria. Its peak capacity will be 30 billion cubic metres (bcm) annually. In Bulgaria, the pipeline is expected to split into two separate lines, one leading north through Romania and Hungary, and the second leading to Italy via Greece.
Italian partnersFor Gazprom, a priority is to enter the large Italian market, which is attractive both for export volumes and direct deliveries to final consumers (see RUSSIA: Gazprom must balance obligations and image - March 26, 2007). Italy's gas market is the third largest in Europe, after the United Kingdom and Germany. Moreover, Italy is Europe's second-largest importer of Russian gas.
To build the South Stream pipeline, Gazprom will create a joint venture with Italian Eni. The partners will finance the project on a parity basis, and the line is expected to become operational three years after the final permissions and approvals are received. Italian company Saipem is working on the technical and economic analysis of the pipeline. Saipem was previously involved in preparing the Blue Stream project to Turkey, which also belongs to Eni and Gazprom.
Bypassing Turkey and UkraineIt was originally expected that South Stream would cross the Black Sea alongside Blue Stream, as Blue Stream-2. However, Gazprom later declared that the new pipeline route had been radically altered because Turkey...