South Stream is a step ahead

November 26, 2013
Published in corporate Gazprom Magazine Issue 11

Despite the numerous opponents of South Stream and the opinions of European skeptics doubting the success of the project aimed at constructing a new gas trunkline from Russia to Southern and Central Europe, it is progressing at a fast pace. The gas pipeline commissioning and the start of supplies are scheduled for December 2015. In 2018 South Stream will reach its full design capacity of 63 billion cubic meters a year.

Key parameters

The South Stream project envisages the construction of four 32-inch (812.8 millimeter) diameter gas pipeline strings under the Black Sea at the maximum depth of up to 2.25 thousand meters. They will be laid from the Russkaya main compressor station that will be constructed on the Russian coast to the Pasha Dere receiving terminal on the Bulgarian coast near Varna. The total length of pipes to be laid will be 3.7 thousand kilometers. Then the gas pipeline will run through Bulgaria, Serbia, Hungary and Slovenia to northern Italy. Gas pipeline branches will be constructed from Serbia to Croatia and Republika Srpska (within Bosnia and Herzegovina). In addition, the possibility of constructing a gas pipeline branch to Macedonia is being considered. The total length of the onshore gas main made of 1,200 to 1,400 millimeter pipes will be some 1,455 kilometers in Central and Southern Europe.

The Bulgarian section of South Stream is the most technologically challenging and capital intensive one. The main gas pipeline route will run from the Black Sea coast to the Serbian border. It is also planned to construct a 59-kilometer gas pipeline branch to the gas distribution hub in Provadia (town in the Varna Province of Bulgaria) to convey gas to the consumers in Bulgaria, Turkey, Greece and Macedonia. The total length of pipes within the Bulgarian gas pipeline section will amount to 965 kilometers, including 366 kilometers of loop lines. Moreover, it is projected to construct three compressor stations (CS) in Varna, Lozen and Rasovo with an aggregate capacity of 300 MW as well as a receiving terminal. The necessity of constructing such a terminal in Bulgaria is conditioned by different pressure levels of the offshore and onshore gas pipelines, namely 30 and 10 MPa respectively. The equipment installed here will provide for purifying, heating, reducing, metering and controlling the gas flow.

The length of pipes within the Serbian section of the South Stream will total 655 kilometers, including 74 kilometers of loop lines and 158.6 kilometers of gas pipeline branches. It is planned to construct here two compressor stations with an aggregate capacity of 225 MW. The main gas pipeline route will run from the Bulgarian border to central Serbia and further on to the Hungarian border in the north. Two gas pipeline branches with the length of 52.8 and 105.8 kilometers will be constructed from the main route to Croatia and Republika Srpska.

The South Stream gas pipeline commissioning and the launch of gas supplies are scheduled for December 2015. The system will supply 15.75 billion cubic meters of Russian natural gas to Europe starting from 2016, 47.25 billion cubic meters – from 2017 and in 2018 it will reach the full design capacity of 63 billion cubic meters annually.

The Hungarian section of the gas pipeline will stretch 229 kilometers from the Serbian border to Slovenia via southern and southwestern regions of the country. A 100 MW compressor station will be constructed there. South Stream will cross Slovenia westwards to Italy, the section length will total 266 kilometers. It is planned to launch in this region two compressor stations with an aggregate capacity of 128 MW.

The South Stream gas pipeline commissioning and the gas supplies startup are scheduled for December 2015. The system will supply 15.75 billion cubic meters of Russian natural gas to Europe starting from 2016, 47.25 billion – from 2017 and in 2018 it will reach the full design capacity of 63 billion cubic meters of gas annually. In order to secure the projected amounts of gas supplies it is required to commission almost 6 thousand kilometers of gas line pipes and eight compressor stations with an aggregate capacity of 753 MW between 2015 and 2017. In 2016 alone it is projected to launch 3.5 thousand kilometers of line pipes, including two offshore strings with a total length of 1,850 kilometers and four compressor stations with 375 MW in aggregate capacity.

In order to secure the projected amounts of gas supplies it is required to commission almost 6 thousand kilometers of gas line pipes and eight compressor stations with an aggregate capacity of 753 MW between 2015 and 2017.

“All the main engineering solutions were carefully scrutinized during the FEED and design stages of the South Stream project, that is why no dramatic changes are expected,” reported Leonid Chugunov, Head of the Project Management Department of Gazprom. “However, there is a possibility of minor amendments into the project.” For example, due to specifying the gas volumes to be distributed in Europe through this gas pipeline, the commissioning schedule of gas transmission capacities was amended this July in terms of technical parameters and the commissioning dates of certain production facilities. The specification of initial parameters required amendments into the completed design and permitting documents for the Bulgarian, Serbian and Slovenian sections. According to Leonid Chugunov, the minor amendments may be due to other reasons as well, including the accession of new members to the South Stream project.

Work done and underway

In pursuance of the Order by Russian President Vladimir Putin to speed up the South Stream project and transition to the construction stage in 2012, Gazprom jointly with foreign partners adopted final investment decisions for the offshore and onshore gas pipeline sections in Bulgaria, Serbia, Hungary and Slovenia. In the first three countries the gas pipeline sections were granted the status of national significance. The transition of the project to the investment stage and subsequently to the construction stage was approved. Last December the first seam of the offshore gas pipeline was welded at the Russkaya compressor station site (on the Black Sea coast in the Krasnodar Territory near Anapa). Early this year the program of coordinated activities was approved. It outlined the construction stages and deadlines for the offshore and onshore sections of South Stream. The action plans were signed for the gas pipeline construction in Bulgaria, Serbia, Hungary, Slovenia and Croatia, as well as the roadmap for implementing energy projects in Republika Srpska within the South Stream project.

In addition, this year the headquarters of South Stream Transport B.V. opened in Amsterdam. The basic FEED project was outlined and the final technical concept of the offshore gas pipeline was defined. The public hearings were held to discuss the EIA (Environmental Impact Assessment) report for the Russian offshore section. Project documents and the EIA reports for the Russian and Bulgarian offshore sections were submitted for state environmental appraisal to the Russian Federal Supervisory Natural Resources Management Service and the Bulgarian Ministry of Environment and Water respectively. A contracting strategy was developed for bidding procedures concerning the purchase of pipe products and offshore pipeline laying operations. The preparation of bidding documents started and the competitive procedures launched to choose the contractor for deep-water pipe laying and supplying pipes for the first two string of the gas pipeline. In October South Stream Transport B.V. and Gazprom Export signed a gas transmission agreement. The start of laying the first string of the South Stream offshore section is scheduled for the mid-2014. It is planned to conclude the relevant agreements with suppliers and contractors in the first quarter of 2014.

As for South Stream’s onshore sections, this year public hearings were held and Bulgarian authorities approved the EIA results. The Rasovo CS (Rasovo settlement, Medkovets Municipality, Montana Province) was named as the primary facility to be constructed in Bulgaria. In late October the compressor station hosted a ceremony of welding the first seam at the Bulgarian section of the South Stream gas pipeline. At present, the preparations are underway for the bidding procedure to choose the contractor for construction and assembly operations. Serbian partners approved the spatial plan of the special area for the main gas pipeline route, developed the basic concept, performed archaeological surveys, generated the EIA documents for public hearings and established procedures for the EIA consideration in the Ministry of Energy, Development and Environmental Protection. The construction operations started here on November 24, 2013. In Hungary a contractor was selected through a bidding procedure to perform engineering (FEED and design documentation); spatial planning and EIA. In Slovenia the work is currently underway for national spatial planning and the EIA. In Croatia Gazprom initiated preparations for signing an agreement with Plinacro with a view to set up a joint venture. So far, it is the company which conducts spatial planning and the EIA in a transboundary context in compliance with the Espoo Convention. The point where the gas pipeline branch will cross the Serbian and Croatian borders was agreed. Draft terms of reference were submitted to the Croatian partners to develop the project documentation.

This year an intergovernmental agreement was signed to cooperate while constructing a gas pipeline branch intended for Russian natural gas supply to Macedonia. Before the end of 2013 Gazprom and Macedonian Energy Resources will start developing the FEED documentation needed for conducting a feasibility study of this gas pipeline branch. In Republika Srpska, following the Road Map signed in June, Russia, Bosnia and Herzegovina are getting ready to sign an intergovernmental agreement for cooperation in constructing and operating a gas pipeline branch and power capacities.

At present, the South Stream project is focused on design and survey work as well as bidding procedures to select long lead time equipment suppliers and construction contractors. “Taking into account the project’s complexity and scale, only the companies which have already proved themselves in other major international projects and which have a vast experience are chosen for the South Stream project. For instance, following the bidding results, Dutch INTECSEA was chosen as the general designer of the offshore gas pipeline section. The offers for laying the offshore pipeline were received from Italian Saipem and Dutch Allseas. German Europipe, Japanese Nippon Steel and Sumitomo, Russian Severstal, Vyksa Metallurgical Plant, Chelyabinsk Pipe-Rolling Plant, Izhora Pipe Mill and others are competing for the right to supply the gas pipes,” Leonid Chugunov said. According to Leonid Chugunov, other project member countries choose contractors on the basis of bidding procedures as well. All other conditions being equal, local companies are likely to have an advantage in the contract awarding. But Russian companies also have a chance, for example, Stroygazmontazh, Stroygazkonsalting and Stroytransgaz which have a vast experience and enter the bidding procedures independently or within consortiums.

South Stream Transport B.V. was set up to implement the offshore section of the South Stream project, with Gazprom, Eni, EDF and Wintershall acting as the investors holding 50, 25, 15 and 15 per cent stakes respectively. In order to construct the onshore gas pipeline in the project member countries, Gazprom set up the following joint project companies: South Stream Bulgaria, South Stream Hungary and South Stream Slovenia (on a par with Bulgarian Energy Holding, MVM and Plinovodi respectively) as well as South Stream Serbia (Gazprom holding a 51 per cent stake and Srbijagas – 49 per cent).

Competitive ability

“We are absolutely confident of the competitive ability and economic efficiency of the project. We have an abundant resource base, necessary funds, the experience in delivering such construction projects as well as the extensive support of the South Stream member countries and partner companies. Besides, we are a step ahead of our competitors,” claimed Leonid Chugunov. Let us recall that Gazprom, Italian Eni, French EDF and German Wintershall act as the investors for the offshore gas pipeline section. Joint project companies were set up on the basis of intergovernmental agreements with partner companies in Bulgaria, Serbia, Hungary and Slovenia for the construction of the onshore gas pipeline. The project will be implemented on the basis of project financing. It means that the participants will invest 30 per cent of the funds required for the South Stream implementation, whereas 70 per cent will be attracted in the form of foreign borrowings. Gazprom will provide financing in compliance with the plan for long-term financial investments based on the Company’s investment program.

“Of course, we have to face certain challenges from time to time while implementing an infrastructure project this large. But we are quite a success meeting them,” Leonid Chugunov said. Thus, some technical issues were resolved with regard to defining the final system configuration, choosing the materials and pipe characteristics as well as the pipe laying method. There are also organizational and legal issues brought on by restrictions of the EU legislation, which may lead to the breach of the project schedule, the rise in price and decrease in investment attractiveness. To resolve them, Gazprom and its partners are closely cooperating with the EU authorized bodies. There are also political issues to be faced with. For example, because of the uncertainty in Bulgaria this January and the follow-up change of its government, the Bulgarian party had to suspend the project operations during the first half of the year. With a view to comply with the construction startup deadline, joint talks involving the project partners were held with representatives of the new Bulgarian Government. This helped to eliminate the delay with permission procedures, thus making it possible to start the construction as soon as before the end of 2013. A similar problem also presented itself in Hungary last March, when the Hungarian Government decided to change the authorized project company MFB (Hungarian Development Bank) to MVM (Hungarian Power Companies). The project was actually suspended for more than seven months in Hungary. However, South Stream is currently progressing in full compliance with the plans.

Denis Kirillov