Gazprom cuts South Stream investment, bullish on rising exports – reports

Written by on December 19, 2012 in Business, Europe, News - No comments

Two weeks after the ceremonial welding of the first pipes of the South Stream pipeline, Russia’s state-owned gas company Gazprom was considering a big cut in the amount it is willing to spend on the project next year, Russian business daily Vedomosti reported on December 19.

According to Gazprom’s draft budget for 2013, up for approval by the company’s board on December 20, South Stream was among the projects where the company was cutting back the amounts earmarked for 2013, the daily said. In the case of South Stream, the cut was 27 per cent to about 2.2 billion euro.

South Stream is the cornerstone of Russia’s policy to build new transit pipelines bypassing Ukraine, the result of price disputes between Moscow and Kyiv that led to interrupted gas deliveries to Europe in 2006 and 2009. The pipeline is meant to cross the Black Sea, landing in Bulgaria and passing through Serbia, Hungary and Slovenia on its way to northern Italy. At full capacity, which it is scheduled to reach by 2018, Gazprom would pump 63 billion cubic metres of gas a year through South Stream.

Some analysts have challenged Gazprom’s schedule for the project and the European Commission, which backs the rival Nabucco pipeline project, has repeatedly said that it is yet to see environmental impact assessment studies for the pipeline. Gazprom was yet to secure the required documentation to start laying pipes under the Black Sea, Vedomosti said, quoting an unnamed source familiar with the situation.

Gazprom was reducing its 2013 investment programme in half and its capital expenditures for the next three years by one third, according to Vedomosti, but analysts quoted by the newspaper said that the company often allocated additional funds for infrastructure investment during the year, so the current plans should not be interpreted as final and unalterable.

Meanwhile, in the wake of last week’s new daily record of deliveries of gas to Europe (550 million cubic metres), Gazprom officials were bullish that the company could reverse the recent trend for declining exports to Europe, daily Nezavisimaya Gazeta reported on December 19.

Gazprom chief executive Alexey Miller took the opportunity to again tout South Stream and its Baltic Sea twin, Nord Stream, as profitable projects that will operate at maximum capacity to meet demand from European customers.

But statistics show Gazprom’s European exports declining by 10 per cent in 2011 and a further 9.3 per cent in the first 11 months of this year. The reason was the increasing diversification of Europe’s sources of gas (most of it coming at cheaper prices than those Gazprom offers in its long-term contracts) and decreased reliance on gas as a source of energy, Nezavisimaya Gazeta said.

“Demand is driven not so much by the economy, which in the euro zone seems unable to shake off the downturn, but by weather. Gazprom can count only on the help of General Winter, who is always on the side of Europe’s fuel suppliers,” the daily said.

(Photo from South Stream welding ceremony, via gazprom.ru)

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