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Nord Stream and South
Stream pipelines have to be filled up. Otherwise, the projects'
partners will
lose money. To load the pipelines, Gazprom is diverting the existing
export contracts to new routes. For example, November 2008 agreement
between Gazprom and SPP (Slovakia)
foresees the reduction of transit flow to the Lanzhot terminal
(Slovakia-Czech border) in 2011-2013, when the Nord Stream and OPAL pipelines
get operational.
Gazprom
officials claim that the South Stream pipeline will be fed by
existing contracts too.
The diversion of export
flows will lead to a sharp drop in transit flows through Ukraine and
partly Belarus. Having the combined
transit capacity of over 175
bcm/yr, by 2020 Ukraine and Belarus may be competing for a mere
40 bcm of transit flow of Russian gas to Europe. Gazprom will be
exporting the rest by Nord Stream, South Stream, Blue Stream and to
Finland.
The reduction of transit
flow will lead to a much lower demand for fuel gas for compressor
stations. When South Stream reaches its full capacity of 63
bcm/yr, the combined demand for fuel gas in Ukraine (more likely) and Belarus
(less likely) will drop by 3 bcm/yr. At the current export price of
Ukraine, it means Gazprom's loss of $800 million of revenue a
year. The loss of sales of fuel gas to Slovakia and Romania will
be compensated by increase of sales to Bulgaria, Serbia and Greece.
On the other hand, Nord
Stream and South Stream will increase the use of fuel gas within the
Russian Federation. The two inlet compressor stations of the
offshore pipelines will use nearly 2 bcm/yr of fuel gas.
The South Stream project
will cost Gazprom
at least $10.5 billion of investment out of Russia. To feed
South Stream, Gazprom needs to build
2300 km of new pipelines and to install 1473 MW of compressor
capacity in the territory of the Russian Federation. There is no
shortage of export capacity. After the completion of Nord Stream,
the combined capacity of export pipelines will exceed 250 bcm/yr,
compared with 139 bcm exported to Europe last year. The huge investment into
the South Stream project does not make any commercial sense. It will
result in higher operating costs and lower revenue. Though the
project does make a lot of sense for the pipeline contractors and
brokers of Gazprom.
Mikhail Korchemkin
East European Gas
Analysis
Malvern, PA, USA
February 15, 2011
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