On June 23, 2007, Russia's then-Gazprom Vice Chairman Alexander Medvedev, now the president, and Italian Eni officials unveiled and signed a memorandum of understanding to build the new line from Russia to Italy. Energy Ministers Viktor Khristenko of Russia and Pierluigi Bersani of Italy joined the officials and provided commercial and technical data on the project.South Stream would start from Russia's Black Sea coast at Beregovaya, the same starting point as that of the Blue Stream pipeline to Turkey. It would run about 900 kilometers on the seabed of the Black Sea, reaching a maximum water depth of more than 2,000 meters, to Bulgaria. Once the pipeline reaches Bulgaria from the Black Sea, there are two probable routes to consider for the Italian route: the southwestern route and the northwestern route.The southwestern route would continue through Greece and the Adriatic seabed in the Otranto Strait to southern Italy. The northwestern route would run from Bulgaria through to Romania, Hungary and Slovenia to northern Italy. If the second route is chosen, a lateral spin from Hungarian territory into Austria is also possible. Gazprom is considering all the options, including both the southwestern and the northwestern routes.
South Stream is envisaged to carry 30 billion cubic meters of gas annually. As far as is known, Eni's SAIPEM unit, which is well experienced in building underwater pipelines, such as Blue Stream to Turkey, is still working on feasibility studies. The investments costs will be borne by Gazprom and Eni on equal basis. According to Eni, the costs would be similar to those of constructing an LNG supply line along the South Stream route. That, of course, means high costs from the start.
Well, high costs indeed, as Russian Energy Minister Sergei Shmatko reluctantly announced this week while conferring with Italian Economic Development Minister Claudio Scaloja that the cost of South Stream line would be around $20 billion. He further stated that even this sum is an interim one, pending another financial assessment to be completed by the end of this year.
This new interim sum of $20 billion exceeds by $5 billion the sum that Moscow was mentioning earlier this year when inviting countries to join the project. In fact, several countries have joined the project in some form or another. Greece, Serbia, Hungary and Bulgaria have all signed some form of intergovernmental agreement with Russia. Furthermore, the Bulgarian Parliament ratified the agreement last week amid heated debate, with 140 votes in favor in the 240-seat Parliament, thus committing Bulgaria to the project for at least 30 years. Apart from these countries, Austria and Slovenia have been preparing to join the project, despite the project's incompatibility with the European Union's energy policy.
In this context, some argue that Moscow delayed the cost-increase announcement to manipulate the Bulgarian Parliament's debate over the agreement. Once the agreement was ratified, Moscow felt free to announce the hike, they claim. This may be true; who knows. But whether it was a deliberate move or not, that does not hide the fact that South Stream will be a very costly project, and this may well undermine its chances against the Western-backed Nabucco project, whose cost will be much less, around $7 billion.
The South Stream line, which until last month was seen as outflanking the Nabucco project, has lost some of its appeal and advantage because of its hefty, cost and for this reason some countries may either withdraw from it or revise their decisions.
Now it is time for Nabucco partners to stop bickering and playing around, and speed up the project. A real chance for Nabucco, created by its rival, should not be missed.
