South Stream is estimated to cost EUR 15.5 billion

It is currently forecast that the upward gas demand trend will continue in the long run. In particular, after 2020 the “blue fuel” consumption in Europe is expected to surpass 600 billion cubic meters, while indigenous production will decline by half. Accordingly, South Stream will provide one of the few real opportunities to tackle the challenges related to overcoming the lack of energy carriers and maintaining the energy security in Europe.

In fact, South Stream is divided in two stages. Stage one stipulates construction of a gas trunkline under the Black Sea, stage two – a new pipeline grid in Southern and Central Europe. Moreover, it will be required to expand the existing gas pipeline system in Russia. Russian gas pipelines are being designed so far.

East and west

The compressor shop under construction at the Pochinki compressor station (CS) will become the initial point of the gas pipeline being designed. The CS is fed with “blue fuel” from Urengoy and Yamburg via the Urengoy – Uzhgorod, Urengoy – Center, Yamburg – Yelets and Pochinki – Gryazovets gas pipelines. The terminal point of the Russian section will be at the main compressor station (MCS) of the offshore gas pipeline in the Anapa (Russkaya MCS) or Gelendzhik (Yuzhnaya MCS) Districts, Krasnodar Krai. Natural gas will be supplied here from the west (Petrovsk – Kalach – Pisarevka – Sokhranovka – Berezanskaya) and from the east (Pochinki – Petrovsk – Frolovo – Izobilnoye – Salskaya – Berezanskaya). Therefore, the first stage will embrace construction of a new pipeline section from the Pisarevka CS to the Black Sea coast and an interconnector from the Kubanskaya CS of the Blue Stream gas pipeline to the Korenovskaya CS. In addition, it is planned to reconstruct the existing corridor between Petrovsk and Pisarevka. Once completed, these operations will enable to annually convey 31.5 billion cubic meters of natural gas to the sea coast. At the next stage of the gas pipeline system expansion it is planned to construct a new section from the Pochinki CS to the Black Sea coast in the existing corridor: Pochinki – Izobilnoye – Severo-Stavropolskoye UGS facility. Then, it will be possible to feed up to 63 billion cubic meters of gas to the sea coast.

Depending on the terminal point location, Russia’s new gas pipeline system will be some 2.5 thousand kilometers long. Moreover, it is proposed to build 10 compressor stations. The gas pipeline laying will be carried out in eight regions of the country: the Voronezh, Volgograd, Rostov, Nizhny Novgorod, Penza and Saratov Oblasts, Mordovia and the Krasnodar Krai. So far, Gazprom has defined locations for key facilities of the new gas pipeline, obtained all the permits required from executive authorities in the specified Russian regions and the approvals from land users in the municipalities. Thus, design and exploration work has been started as early as this year. Giprospetsgaz acts as the general designer, Piter Gaz – as the construction customer for the Russian onshore section. All preparations and design works are to be completed by September 2012. Construction operations are to begin no later than October. The first string of the gas pipeline is scheduled for commissioning in the fourth quarter of 2015.

Large-scale exploration work is underway offshore the Black Sea. Programs for large-scale offshore exploration and pipe testing as well as basic engineering solutions were approved by DNV Business Assurance.

Access to Europe

The four-string submerged section will be some 900 kilometers long. The maximum pipe laying depth will reach 2,250 meters. Two options for the onshore gas pipeline to convey Russian feedstock to Southern and Central Europe are under consideration: a northwestern route to Slovenia and Austria via Bulgaria, Serbia and Hungary, and a southwestern route to Greece and Italy. Gas laterals will be diverted from the main route of the South Stream onshore section in Europe to Croatia and Macedonia, the latter one starting in Bulgaria.

Intergovernmental agreements have been signed with Bulgaria, Serbia, Hungary, Greece, Slovenia, Austria and Croatia in order to execute this project stage. The agreements provide for setting up joint ventures between Gazprom and the companies authorized to implement South Stream as well as preparing feasibility studies for each of the host countries. All the national feasibility studies will be completed before long, laying the foundation for the consolidated feasibility study for South Stream to be prepared by Gazprom before April 2011.

In current prices, it will cost some EUR 10 billion and EUR 5.5 billion to construct the offshore and the onshore gas pipeline sections in Europe, accordingly.

The project cost-effectiveness to a large extent depends on the exemption from the third party access principle being mandatory in the EU. The exemption will provide the gas pipeline owner with an exclusive right to use its full throughput capacity (over an extended period of time as a rule). Therefore, South Stream representatives will approach regulators in each and every host country with a respective request. The regulators are to inform the European Commission (EC) on the decisions made relevant to granting the exemption. The final word is up to the EC that is authorized either to approve the decision made by the national regulators or to make certain amendments in these decisions within two months.

Leonid Chugunov, Head of the Project Management Department of Gazprom in his interview to the corporate Gazprom Magazine said: “Four strings will run from the Russian coast – the respective corridors are still to be chosen. The only thing I can say is that they will not run across Ukraine’s exclusive economic zone. It is the most technologically sophisticated part of the project and the pipe will be not a regular one here – 800 millimeters (32 inches) in diameter with at least 39-millimeter thick wall. The pressure at the MCS output will be around 280 atmospheres. Meanwhile, the onshore section located prior to the coastal station in the Krasnodar Krai will be operated under the increased pressure of approximately 120 atmospheres. The South Stream landfall in Europe may be located either in Bulgaria – this route is currently considered as the basic one – or in Romania. At the moment, potential crossing of this country’s coastal line by one or two gas pipeline strings is being worked out”.

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