* South Stream to start pumping gas in 2015
* Project faces regulatory risks in Europe
* Putin says will ensure dependable gas supply to Europe
* EU official has called South Stream "phantom project"
By Alexei Anishchuk and Vladimir Soldatkin
ANAPA/MOSCOW, Dec 7 European energy executives
lined up with Russian President Vladimir Putin to witness the
first weld on the South Stream pipeline on Friday in a show of
support for a project that would enable Russia to retain its
dominance of Europe's gas market.
Top executives from partners in the South Stream consortium
- France's EDF, Germany's Wintershall and
Italy's Eni - joined the chief executive of project
leader Gazprom, Russia's state gas export monopoly,
for the ceremony near the Russian Black Sea resort of Anapa.
The pipeline is scheduled to start shipping gas in late 2015
at an annual rate of 15.75 billion cubic metres and reach full
capacity in 2018 of 63 bcm, around half of Russia's current gas
flows to Europe.
The show of European corporate support may be an example of
what critics have depicted as a Gazprom policy of cultivating
strong ties with individual consumer countries as part of a
divide-and-conquer strategy in iyd disputes with the European
Relations between Russia and the European Union have been
fraught with distrust over energy supplies for over half a
decade. They have worsened since the EU's competition watchdog
launched an antitrust investigation into Gazprom's gas flows and
prices in September.
The two are also at odds over Europe's pipeline access
rules, which Gazprom says hinders investment in one of its major
markets and creates uncertainty for the South Stream project
Putin, who is due to go to Brussels for an EU-Russia Summit
on Dec. 21, is likely to use the opportunity to portray Russia
as committed to providing reliable energy supplies to Europe to
counter European concerns that it is using gas market dominance
for political leverage.
"Together with Nord Stream - the similar system on the
seabed of the Baltic Sea - South Stream will create conditions
for safe, unconstrained deliveries of Russian gas to our key
consumers in Europe," Putin told an assortment of European
executives and Russian officials gathered in a huge tent for the
After his speech, a worker completed a first, symbolic,
welding of two sections of the pipeline.
South Stream was designed to bypass Ukraine after a 2006
conflict with Kiev led to cuts to winter gas supplies and
strengthened Europe's resolve to cut its reliance on Russia and
find other sources of gas.
Russia has emphasised its willingness to invest in European
energy security through the construction of South Stream, which
will go under the Black Sea to Bulgaria then overland through
southeastern Europe to Italy, and the completed Nord Stream
pipeline, which stretches under the Baltic to Germany.
Some investors are sceptical about South Stream, which could
end up costing 25 billion euros ($32.5 billion) or even more for
both the undersea and overland sections.
A final investment decision by the South Stream partners is
still conditional on several regulatory issues including
environmental assessments and permits from Turkey, Bulgaria and
Russia. The laying of the underwater section is not expected
before 2014, after all the permits are obtained.
EU Energy Commissioner Guenther Oettinger, an advocate of
reduced dependence on Russian energy, has called the 16 billion
euro, 900 km undersea section a "phantom project", reflecting
doubts it will ultimately be built.
"This business is about the right combination of risk and
cash flow. The construction of South Stream and Nord Stream is
about reduced risks, and I think it's good that risks will be
lower," Russian Deputy Prime Minister Arkady Dvorkovich said
when asked whether South Stream's costs were justified.
"It will provide stable cash flow for the Russian economy.
I don't think we should treat each project separately in this
The project emphasises Russia's need to keep a grip on the
European market, where it has delivered just over 130 bcm so far
this year, far short of its 150 bcm target.
Turkish Energy Minister Taner Yildiz was also in Russia for
the ceremony, which followed a meeting between Turkish Prime
Minister Tayyip Erdogan and Putin that reflected a deepening
relationship on energy and trade.
South Stream would pass through Turkish waters in the Black
Sea. The energy-poor country is also a vital transit territory
for rival gas pipeline projects such as the proposed
Trans-Anatolian Pipeline, which would carry gas from the BP-led
Shah Deniz II gas project in Azerbaijan to southern
Europe starting in 2016.
Yildiz said the environmental assessment for South Stream
was not complete.
"All the official process is now ongoing, and we have
already mentioned that we will be supporting the South Stream in
this regard," he told reporters in Anapa.