Gazprom Ends Plan To Build Pipeline To Italy
Gazprom has abandoned plans to build a section of its disputed South Stream gas pipeline to Italy, two sources close to the company said on Wednesday, a day after Gazprom announced a deal with OMV (OMV.F) to build a branch to Austria.
"The additional Italian spur option was effectively ditched. Gas will now be delivered to the Austrian hub, from where it could go to many destinations in Europe along the existing pipelines," one of the sources said.
"Without the Italian spur, the project's costs will drop by as much as $1 billion."
Italy signalled on Wednesday it still supported the South Stream project. "The project is not frozen," a government spokesman told Reuters, denying an earlier report.
Earlier on Wednesday, a government source said the project had effectively been put on ice, adding that Rome would focus on the Trans Adriatic Pipeline (TAP), which will transport Azeri gas, and the ITGI Interconnector pipeline through Turkeyand Greece into Italy.
The South Stream's proposed 2,500 km (1,500) route stretches from Russia under the Black Sea through Bulgaria and Serbia to Hungary and now Austria. It bypasses Ukraine, through which almost half the gas Europe buys from Russia currently passes.
Europe is worried about its dependence on Russian gas, which accounts for around a third of EU imports, particularly after Russian-Ukrainian gas disputes in 2005 and 2009 led to supply disruptions. But the bloc has yet to come up with a realistic alternative.
The European Commission, the EU's executive arm, says South Stream does not comply with its regulations on ownership and pipeline access and put the approval process on hold following Russia's annexation of Crimea in March.
A commission spokeswoman on Wednesday said she could not comment on the proposed route of South Stream.
Some European leaders see South Stream as a solution to avoid future potential supply disruptions.
Eni Chief Executive Paolo Scaroni said last month the project's future had been called into question by the escalating dispute over Ukraine, which could complicate an already complex permitting process in the different transit countries.
South Stream is designed to have a total capacity of 63 billion cubic metres per year, enough to meet about 13 percent of EU gas consumption, and the Austrian section would have half that capacity, OMV and Gazprom said.
EU support for Nabucco West faded as South Stream, with its similar route through central Europe, moved closer to reality.
South Stream is also a potential way for OMV to import gas from any future Black Sea discoveries of its own, which it says may prove to be its biggest ever.
Following the selection of TAP as the pipeline for Azeri gas, the need for a second major pipeline such as South Stream to deliver gas to Italy, an already oversupplied and depressed market, has decreased.
"One of the main reasons (for switching the end point to Austria) was the fact that consumption in Italy has fallen significantly compared to the years when the project was first designed," the Gazprom source said. "Delivering gas to the Austrian hub is a very efficient option."