Gazprom starts work on South Stream

Symbolic: welding of pipe sections at South Stream construction launch

A Gazprom-led consortium formally started construction on Friday of the South Stream gas pipeline that will feed European markets.

High-profile guests including Russian President Vladimir Putin, Gazprom executive chairman Alexei Miller and Eni chief executive were in attendance at a launch ceremony held at the Russkaya compressor station near the Black Sea resort town of Anapa.

Two sections of the pipeline were symbolically welded together in what was hailed by Miller as “an historical event”representing the bonding of the Russian and European gas transport systems.

"The project embodies the intention of Russia and the countries of southern and central Europe to strengthen the partnership in the energy sector and to create a new reliable system of Russian gas supplies to European consumers,” he said.

It is also an important step by the Russian gas giant to diversify its gas export routes to Europe to bypass traditional transit countries such as Ukraine, where an ongoing wrangle over gas pricing has historically disrupted supplies.

Gazprom has faced pressure from Putin to start construction of the route, with the 900-kilometre offshore section to be laid across the Black Sea from Russia to Bulgaria and the onshore portion to run 1450 kilometres from Bulgaria to Serbia.

The pipeline is scheduled to come on stream in late 2015 and is due to export 63 billion cubic metres of gas per year to southern Europe from 2018, with total investments currently estimated at around $21 billion.

The consortium members are Gazprom with 50%, Italy’s Eni on 20%, and Germany’s Wintershall and France’s EdF, each with 15% interest.

Gazprom, meanwhile, is also increasingly shifting to liquefied natural gas exports to target the booming Asia market, where gas prices are higher.

The the company last week completed the first LNG shipment through the Northern Sea Route, now traversible due to melting of Arctic ice,using the chartered vessel Ob River.

The LNG carrier reached the Japanese terminal of Tobata after making the 28-day crossing from Statoil's Snohvit LNG terminal on the island of Melkoya off Hammerfest, having been escorted along the route by Russian nuclear-powered icebreaker vessels.

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