Russia seeks to speed up South Stream with new deals

SOCHI, Russia Fri May 15, 2009 11:58am BST

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SOCHI, Russia (Reuters) - Russia will on Friday sign deals with Italy, Bulgaria, Greece and Serbia to build a major gas link to Europe, South Stream, as it seeks to speed up work to outpace the key rival project, Nabucco.

Russia has long said it does not see Nabucco -- designed to export gas from Central Asia and the Caspian to Europe and ease the continent's heavy dependence on Russian gas -- as a rival project, although it adds there is not enough gas for both.

Italian Prime Minister Silvio Berlusconi will travel to Russia's Black Sea resort of Sochi to meet Prime Minister Vladimir Putin and both men will oversee the signing of a deal between energy majors Gazprom (ENI.MI) and ENI (ENI.MI).

The two firms have already set up a 50/50 joint venture to build South Stream, which will start near Sochi, cross the Black Sea to reach Bulgaria, Greece, Serbia, Hungary and ultimately Italy with supplies of at least 30 billion cubic metres a year.

Russia is already supplying a quarter of Europe's gas needs with exports of 150 billion cubic metres a year and Gazprom's plans such as South Stream and Nord Stream in the Baltics have increased EU concerns it would become yet more dependent on Russia.

The Kremlin is often accused of using energy as a weapon and European voices for greater diversification intensified after Russia cut gas to Ukraine twice in recent years due to pricing disputes amid icy political relations with Kiev.

The cuts led to large disruptions of gas supplies to Europe and Gazprom argues that new pipelines under the Black and Baltic Seas will ease its dependence on transit states and boost Europe's energy security.

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Putin will also preside over the signing of deals between Gazprom and Bulgarian, Serbian and Greek energy companies.

Some of the deals, however, are not going as smoothly as planned.

Kommersant business daily reported on Friday the deal with ENI would be a preliminary protocol, rather than a final deal, as the Italian major insists it wants to sell gas from South Stream along the pipeline's entire route, not just in Italy.

Gazprom opposes the move and has also asked Bulgaria to allow it to use the country's existing pipeline infrastructure instead of building new pipelines for South Stream.

Bulgaria, the country worst affected by the latest Russia-Ukraine gas row in January, has opposed this plan. Sofia is also planning to host the Nabucco route.

Berlusconi's visit to Sochi will, however, give South Stream a much needed political boost, which Kommersant said is coming at a price and was not only due to the friendly relations between Putin and the Italian prime minister.

Gazprom, Russia's most indebted company, had to buy back its stake in an oil arm from ENI in April at well above market price and Italy is now seeking more guarantees from Gazprom for its involvement in the project's financing.

While the fate of South Stream depends much on its ability to reach final agreements with transit states and financing availability, Nabucco needs first and foremost to find reliable and long-term gas suppliers.

So far only global majors BP (BP.L) and Statoil (STL.OL), working in Azerbaijan, have agreed to supply gas to it, while Baku itself is considering an option to sell gas to Gazprom.

Turkmenistan, seen as the other big potential supplier to Nabucco, refused to join the project at a summit in early May in Prague despite uneasy relations with Moscow.

The Caspian nation, which heavily depends on gas revenues, was forced to shut down exports to Russia in April, blaming Gazprom for a pipeline blast after the gas behemoth drastically reduced imports because of low demand in Europe and at home.

(Writing by Dmitry Zhdannikov; Editing by Keiron Henderson)

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