Russian gas giant OAO Gazprom said it would invest 509.6 billion Russian rubles ($16.89 billion) expanding its pipelines to take gas to southeastern Europe via the South Stream link, piling further costs onto a project aimed at bypassing traditional transit countries Ukraine and Belarus.
The investment in Russia's domestic pipeline network, revealed Tuesday in a document posted on Gazprom's website, will bring the total cost of the South Stream project—aimed at shipping 63 billion cubic meters of gas under the Black Sea by 2018—to $38.4 billion. The offshore and European sections of the pipeline are forecast to cost €16 billion ($21.53 billion).
Russia is building the South Stream pipeline to diversify supply routes to the European Union after disputes with Ukraine led to cutoffs in 2006 and 2009. Russian gas covers about a quarter of Europe's needs.
Analysts have long criticized Gazprom for perceived overspending on pipeline projects. Some analysts question the need for South Stream, given flagging demand for Russian gas in its most lucrative market in Europe.
"It looks expensive and unprofitable, as in the future Gazprom will have to pay for gas transit under 'supply or pay' terms, and it may not fully supply the pipeline," said Raiffeisen Bank analyst Andrey Polishchuk. "It's a risky project. The only reasons to build it are political, to decrease the risks related to transit through Ukraine."
Gazprom and its South Stream partners Électricité de France SA, BASF-Wintershall and Italy's ENI SpA launched construction of the offshore section of the pipeline in December.
The investment in Russia's domestic pipeline network, revealed Tuesday in a document posted on Gazprom's website, will bring the total cost of the South Stream project—aimed at shipping 63 billion cubic meters of gas under the Black Sea by 2018—to $38.4 billion. The offshore and European sections of the pipeline are forecast to cost €16 billion ($21.53 billion).
Russia is building the South Stream pipeline to diversify supply routes to the European Union after disputes with Ukraine led to cutoffs in 2006 and 2009. Russian gas covers about a quarter of Europe's needs.
Analysts have long criticized Gazprom for perceived overspending on pipeline projects. Some analysts question the need for South Stream, given flagging demand for Russian gas in its most lucrative market in Europe.
"It looks expensive and unprofitable, as in the future Gazprom will have to pay for gas transit under 'supply or pay' terms, and it may not fully supply the pipeline," said Raiffeisen Bank analyst Andrey Polishchuk. "It's a risky project. The only reasons to build it are political, to decrease the risks related to transit through Ukraine."
Gazprom and its South Stream partners Électricité de France SA, BASF-Wintershall and Italy's ENI SpA launched construction of the offshore section of the pipeline in December.
