December 13, 2007 / 11:19 AM / 11 years ago

UPDATE 1-Nord Stream to hike cost estimates in early 2008

(Adds quotes from Nord Stream in Moscow, analysts, details)

By Tom Kaeckenhoff and Tanya Mosolova

FRANKFURT/MOSCOW, Dec 13 (Reuters) - Nord Stream, the firm building a subsea gas pipeline from Russia to Western Europe, said on Thursday it will early next year revise up the project’s costs, which analysts say may soar by at least 60 percent.

Nord Stream, majority owned by Russian gas export monopoly Gazprom (GAZP.MM), has said it would take at least 5 billion euro ($7.3 billion) to build the 1,200 km (750 mile) pipeline under the Baltic Sea from Russian to Germany.

“We are most likely to increase the estimated costs of the project in early 2008, after we complete evaluation of four main expense categories, such as pipes, pipe-laying, logistics and environment,” spokeswoman Irina Vasilyeva said.

She said the main reason for the review was steep increase in steel prices since costs were first estimated in 2005.

A Nord Stream spokeswoman in Switzerland, where the group is based, confirmed it would only be possible to make a new cost estimate in February or March.

Nord Stream could not say how much costs might rise, but media on Wednesday quoted Germany’s former chancellor Gerhard Schroeder, as saying in New York that they might balloon to 8 billion euros ($11.8 billion).

Schroeder chairs the supervisory board of the Nord Stream consortium, which apart form Gazprom, which owns 51 percent, involves German firms BASF BASF.DE and E.ON EONG.DE, with 20 pecent each, and Dutch Gasunie with 9 percent.

E.ON Ruhrgas CEO Burckhard Bergmann told reporters on Wednesday that the Nord Stream costs are likely to turn out to be more expensive than many energy projects across Europe, but declined to specify a new figure.

A spokesman for BASF said the company had already said in presentation over a year ago that the figure might rise to 9 billion euros ($13.2 billion).

ECOLOGY TO WEIGH ON COSTS

Analysts said an increase to at least $12 billion is very likely, as Nord Stream faces rising global prices for materials and services and other environmental challenges.

“It is often the case with big projects like this. Remember Trasneft’s Asian pipeline, Kashagan... Taking into account increased prices for metal pipes, costs may easily reach 8 billion euros or more,” said Denis Borisov from Solid brokerage.

Vasilyeva said Nord Stream has already signed contracts with Russia’s OMK and Germany’s Europipe to supply pipes for Nord Stream’s first line, which will require some 1.1 million tonnes of steel.

She also said the consortium plans to sign a contract in February with Italian engineering firm Seipem (SPMI.MI) to lay pipes. “All these contracts are big, worth over 1 billion euros each,” she added.

Analysts also said quelling enviromnental concerns would also hit the project’s partners in the pocket. “Extra investment will be required to meet environmental demands of the countries whose territory the pipeline will cross,” said Konstantin Reili from Finam.

Gazprom, which had planned to start gas supplies via Nord Stream in 2010, has warned the project could face delays amid objections over the project’s safety from Baltic Sea states.

Poland, Latvia, Lithuania, Estonia and Sweden have raised ecological and other concerns about the project, which will deepen Europe’s already-heavy dependence on Russian gas.

Nord Stream is expected to be able to cover more a quarter of Europe’s incremental gas demand by annually shipping 27.5 billion cubic metres (bcm) of gas a year from 2010, with a second pipeline to double its capacity to 55 bcm. (Additional reporting by Patricia Gugau in Frankfurt) (Writing by Tanya Mosolova and Vera Eckert)

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