Gazprom ups pipeline costs, delays oil project

MOSCOW, March 31 (Reuters) - Russia's gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research) acknowledged on Monday it was facing delays and cost overruns at two key projects, a pipeline to Europe and an Arctic oil development.

The world's largest gas firm said in a memorandum for investors ahead of its Eurobond issue that its Nord Stream pipeline to Germany under the Baltic Sea would cost 7.4 billion euros ($11.7 billion), up from the previous estimate of 5 billion euros.

Germany's former chancellor and chairman of the Nord Stream consortium, Gerhard Schroeder, has said it may cost over 8 billion euros to build the pipeline, which will ultimately ship 55 billion cubic metres of Russian gas to Europe via two links.

But the consortium, which also includes Germany's BASF (BASF.F: Quote, Profile, Research) and E.ON EONG.DE, as well as Dutch Gasunie, has so far declined to confirm the figure, saying it was awaiting a final valuation.

In December, an E.ON board member said it would become more expensive than anticipated.

"The project implementation costs are estimated to be approximately 7.4 billion euros. Nord Stream is currently consulting with state authorities in countries involved in the construction of the pipeline in order to obtain appropriate governmental approvals," the memorandum said.

It also said Gazprom would again postpone the launch of its Prirazlomnoye field on the Pechora Sea.

"The estimated maximum annual oil production volume for this field is expected to be 6.6 million tonnes, and the total investment for the period from 2008 through 2012 is expected to be approximately 24.2 billion roubles ($1.03 billion) for the field to reach the maximum output level".

"We plan to install an offshore ice-resistant platform and begin production at the field in 2010," it said. The latest plan was for the field to be operational in 2008, while the initial plan saw it producing oil as early as 2001. (Reporting by Dmitry Zhdannikov; editing by Alex Lawler)