November 22, 2007 / 2:53 PM / in 11 years

UPDATE 3-Gazprom, Eni move ahead with 10 bln euro pipeline

(Adds Putin’s comment in para 6, EU para 8)

By Amie Ferris-Rotman

MOSCOW, Nov 22 (Reuters) - Russian gas export monopoly Gazprom (GAZP.MM) and Italy’s Eni (ENI.MI) agreed to form a 50/50 joint venture to operate a new gas export pipeline to south Europe costing at least 10 billion euros ($14.83 billion).

The deal on Thursday is a major step towards building the South Stream pipeline, which would take 30 billion cubic metres a year of Russian gas to Europe.

“We are open to other partners joining the project,” Eni’s CEO Paolo Scaroni told a press briefing in Moscow before the companies signed the agreement.

“We use this opportunity to have a political blessing for our commercial agreement with Gazprom,” added Scaroni, who joined Italian Prime Minister Romano Prodi on a state visit to President Vladimir Putin — his third this year.

Such public meetings often indicate that the Kremlin is close to finalising a major business deal.

“The South Stream project has huge importance for supplying energy to Europe on principles of transparency... We are grateful to the European Commission for backing this project,” Putin told a news conference. He did not say what form the backing had taken.

Analysts see the South Stream project as posing a challenge to the rival Nabucco pipeline scheme, which would take gas from Azerbaijan to south Europe via Turkey in a European Union effort to diversify energy sources away from reliance on Russia.

In Brussels on Thursday, the coordinator of the EU’s Nabucco project, former Dutch Foreign Minister Jozias van Aartsen, said all the participating European states were fully committed to the complex scheme after wobbles earlier this year.

“All the four countries on the European side, Austria, Hungary, Bulgaria and Romania are glued to the project again, and are really involved and do see the project as a priority for their countries,” he said.

South Stream will be set up as a company by the same name, Scaroni said, and its structure and board members will soon be decided by Eni and Gazprom.

Some of the gas for the link will come from Russian fields of Eni, previously operated by bankrupt Russian oil firm YUKOS.

Russian gas will go from the Novorossiisk port, travel 900 km under the Black Sea, re-emerge on the Bulgarian coast and then continue through one of two onshore routes.

If it goes south, it would then pass Greece and reach Italy’s southern Puglia region.

Going north, gas would pass through Romania, Hungary, the Czech Republic and Austria before arriving in Italy.


“It’s intensive work dealing with so many countries and political diplomacy,” Scaroni said.

“This (South Stream) is a European project. This is designed to take gas to millions of people in the EU,” Scaroni said.

Eni still hopes to join Gazprom in its Baltic LNG project in St Petersburg. The $3.5 billion, 5 million tonne capacity plant — to be built by 2013 — will liquify gas for transport to North America on tankers.

Gazprom’s deputy chairman Alexander Medvedev said earlier this week a decision would be made next month.

Apart from Eni, Petro-Canada PCA.TO, BP (BP.L), Japan’s Mitsui and Co (8301.T) and Mitsubishi Corp (8058.T), Spain’s Iberdrola (IBE.MC) and a Malaysian firm are potential partners.

“We are very interested in this project, we have the technology for the market, and I think we are very well equipped,” Scaroni said.

He also said details of Eni’s offer of assets in North Africa to Gazprom were also discussed between the two companies.

To read a story click on a proposed Eni-Gazprom asset swap, please click on [ID:nL22224834]

For a story on Nabucco, please see [ID:nL22305568]

Reporting by Amie Ferris-Rotman and Oleg Shchedrov, editing by Anthony Barker

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