Wall Street Journal - 16 May 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305

(Copied 26 Jul 09)

Russia, Italy to Double Capacity of Gas Pipeline

By Guy Chazan
May 16, 2009

Russian and Italian energy companies agreed to double the capacity of a new gas pipeline from Russia into the heart of Europe that will bypass Ukraine, in a new challenge to a rival project backed by the U.S. and Europe.

Italy's ENI SpA and OAO Gazprom, Russia's state-run gas export monopoly, agreed to increase South Stream's annual capacity to 63 billion cubic meters from 31 billion cubic meters. "Most of this gas will substitute gas currently crossing Ukraine, and some new gas," said Paolo Scaroni, ENI's chief executive.

The agreement, which was signed in the presence of Russian Prime Minister Vladimir Putin and his Italian counterpart Silvio Berlusconi in the Russian resort of Sochi, should give fresh momentum to South Stream, one of the Kremlin's pet projects. It also underlined Russia's determination to create new export routes for its gas that skirt Ukraine, following a string of disputes that have led to disruptions in Russian gas flows to Europe and undermined Moscow's reputation as a reliable energy supplier to its core market.

Gazprom also signed deals in Sochi with the main energy companies of Serbia, Bulgaria and Greece, three of the key transit countries for the pipeline, which will run from Russia under the Black Sea to Bulgaria.

Around 80% of the natural gas Russia now delivers to Europe goes via Ukraine, but Moscow asserts that the bitter rows with Kiev over pricing have put a question mark over the route's long-term viability. The last, in January, led to a cutoff in Russian gas deliveries to Eastern Europe, leaving hospitals, schools and homes without heat in the depths of winter.

In a bid to avoid future disputes, Russia has sought to gain control of Ukraine's gas network, so far without success. It reacted furiously to an agreement signed between Ukraine and the European Union in March that foresaw the EU investing millions of dollars in Ukraine's gas network, saying that as sole gas supplier to Ukraine it should have been asked to participate in such an upgrade.

Some EU countries, meanwhile, have expressed concern about the bloc's growing reliance on imported Russian gas and fear South Stream -- and Nord Stream, a sister pipeline to be built under the Baltic Sea to northern Germany -- would only reinforce that dependence. The EU has backed Nabucco, a pipeline that would bring gas from Central Asia to Europe via Turkey, bypassing Russia.

Russia has dismissed Nabucco as politically driven, and questioned where it would get its gas. The pipeline's backers hope to be able to source gas from Central Asia and the Middle East, but Mr. Scaroni said at this stage Nabucco could count only on the Caspian state of Azerbaijan. "Europe uses 600 billion cubic meters of gas a year," he said. "Azerbaijan can send 10 billion cubic meters into Europe. That's nothing in terms of Europe's security of supply."