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INTERVIEW Gazprom spokesman says company is primarily studying Turkey route for South Stream - a route which avoids Romania

de Anne-Marie Blajan
Miercuri, 2 septembrie 2009, 17:39 English | Top News

Serghei Kuprianov
Foto: Gazprom
"The [South Stream] pipeline will either cross the exclusive economic zone of Russia, Ukraine, Romania and Bulgaria, or Russia, Turkey and Bulgaria. But prior and large-scale research must be done before one of them is chosen. Since the recent verbal agreements with Turkey, we have been studying primarily the possibility of laying this gas pipeline through the Turkish economic zone of the Black Sea", Gazprom official spokesman Sergei Kupriyanov said in an interview with

Rep.: Gazprom said a couple of months ago that the price of gas for Romania will be 220 dollars until the end of the year. Can you explain how will we come to this amount and when exactly this price will be paid by Romania?
Sergei Kupriyanov: We have never given a specific price forecast on our contracts for Romania, or any other country for that matter. Publicly we only refer to average price forecasts for Europe - our main export market. These numbers are based on the existing consensus as regards forecasts on the prices of oil and petroleum products. We were initially forecasting an average price of $260/tcm for Europe for 2009. However, oil prices have increased to more than $60 per barrel, and this is why the increase of the average gas price in Europe to about $270-290 range.

Rep.: Mr. Putin has sent the Romanian president a message that Gazprom is willing to give up the intermediate companies that sell the Russian gas to Romania. Can you translate for us the messages sent by Mr. Putin? Have there been talks with the Romanian minister about such things when he visited Russia you and what exactly have you decided?
Sergei Kupriyanov: There are two long-term gas supply contracts between Gazprom and its Romanian partners Conef Energy and WIEE in effect until 2030.. However, if an additional demand for gas arises in your country, Gazprom Group will certainly be prepared to consider proposals to conclude new contracts.

Incidentally, I would like to recall that the first deliveries of natural gas from our country to Romania began in 1979, exactly 30 years ago, which is evidence of our successful bilateral cooperation.

Rep.: You asked Romania’s technical assistance in South Stream project. Will you think, in the near future, to invite Romania to join the project? On what depends such an invitation?
Sergei Kupriyanov: Participation in this project depends to a large extent on the wish expressed from the Romanian side. Last year Gazprom representatives met with our colleagues from the companies Romgaz and Transgaz. At that time we laid out a short-term action plan and drew up a list of the initial data necessary to work out in more detail possible ways of developing the existing transit capacity in Romania and creating new capacity. However, it became clear that the Romanian side needed a lot of time to prepare this information.

Concerning the South Stream route under the Black Sea, several variants are now being considered. The pipeline will either cross the exclusive economic zone of Russia, Ukraine, Romania and Bulgaria, or Russia, Turkey and Bulgaria. But prior and large-scale research must be done before one of them is chosen. Since the recent verbal agreements with Turkey, we have been studying primarily the possibility of laying this gas pipeline through the Turkish economic zone of the Black Sea.

Gazprom has hired Piter Gaz Company to do this work. Piter Gaz is organizing the reconnaissance survey and ecological research as well as looking into obtaining the necessary permits from the countries through whose exclusive economic zones and territorial waters South Stream might run. Requests for the corresponding engineering research have already been sent out, including to the Romanian side.

Rep.: Which of the business proposals made to Gazprom by the Romanian energy minister did you find interesting and have chances to be put into practice?
Sergei Kupriyanov: The matter is still being studied and no decisions have been made.

Rep.: In which way the recent signing of the agreement for Nabucco modifies the games on the energy market in the Southern Europe in the near future?
Sergei Kupriyanov: It will not change anything. Gazprom Group does not consider the Nabucco project as a competitor to our South Stream gas pipeline project. We operate under the assumption that demand for natural gas in Europe will increase in the coming years, while at the same time production by European companies in European countries will fall and their reserves will be dwindling. Based on a forecast from the International Energy Agency, by 2020 Europe will need an additional 100 bcm of gas from Russia and the east as a whole. This is why there is a space for several infrastructural projects in Europe. I would like to emphasize that a distinguishing feature of our Nord Stream and South Stream projects is the existence of a reliable resource base and the corresponding technological support. It is also no secret that South Stream is a way for us to reduce the risks associated with the transit of our gas through Ukraine. In this sense, Nabucco can help neither us nor our customers.

Rep.: A lot of Western analysts say that South Stream is an extremely inefficient project when we talk economics. Why does Gazprom prefer such an expensive project instead of joining Nabucco project? European law does not impede its participation to this project.
Sergei Kupriyanov: South Stream does in fact have a clear economic justification, resource base and market, which guarantees that the project will have a solid finance base once the investment stage is reached. To a large extent Nabucco is thought to be a political and ideological project since it does not yet have a raw materials base and, consequently, lacks financing. After all, in our industry the gas is sold before the pipelines are laid.

It is not clear how and when the Nabucco consortium will be able to solve these crucial problems. How will the cost of the pipeline be determined? As it is now - from the borders of Turkey? In that case who will build the part of the pipeline through which gas will supposedly be supplied to the Turkish border from the fields where it will be produced? Who will pay? The current infrastructure there is clearly inadequate. As to Gazprom Group’s participation in this project, such participation would completely upset the ideological foundation of Nabucco, which was devised precisely in order to exclude Russia’s participation. Its authors are hardly likely to cooperate with us. Russia might be offered participation in Nabucco only in order that she might refuse to participate. In any case, we prefer to concentrate on our South Stream project, which seems much more realistic. Incidentally, many experts have said that without Russian gas, Nabucco will remain an empty pipe, but this is another story altogether.

Rep.: Is it possible that an expensive project like South Stream to lead to an expensive price the European consumer will pay for the gas?
Sergei Kupriyanov: The price of gas is not determined by the cost of its production and transport. Back in the 1970s, the entire world switched from the principle of “cost plus” to the principle of comparability of gas prices with the prices of competing types of fuel. The main competing types of fuel at present are petroleum products, fuel oil and diesel fuel.

The price of gas under long-term contracts tied to the price of oil and petroleum products is determined by a price formula. Such a formula is the result of a verbal agreement between the seller and the customer and satisfies the interests of both of the parties. If an infrastructure project gets more expensive, it might take longer to break even, but this is for the investor to worry about, not the consumer.

According to our latest estimates, the cost of South Stream is comparable to the declared budget of Nabucco.

Rep.: Do you think that using gas to produce electric energy in Russia can lead to diminishing Gazprom’s gas exports?
Sergei Kupriyanov: No. Our resource base and production capabilities allow us to meet demand both on the Russian market and on the various export markets, even if this demand increases. Although gas demand is still falling due to the global crisis, it is expected to return to last year’s pre-crisis level no later than in 2013, even according to the most pessimistic forecasts.

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