THE STREAM OF COSTS.

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.

(WallStreetJournal)

10 ME, 10 YOU (10 io, 10 te)

Russian and Italy will each give a 10% stake in the South Stream pipeline to France's EDF , Russian Prime Minister Vladimir Putin said today.

"We will do it concurrently - us and the Italians, 10% each," Putin told reporters on a visit to Ukraine which followed a meeting with Italian Prime Minister Silvio Berlusconi in Italy.

EDF is set to get a 20% stake in the South Stream gas pipeline designed to bring Russian gas to Europe, with work on the project due to start in the first half of 2012, Putin and Berlusconi said today.

Separately, Putin said Russia's budget will lose $3 billion this year and $4 billion in 2011 as a result of agreeing last week to a 30% cut in the price of its gas supplies to Ukraine.

"In essence it will mean an increase in the budget deficit for us," he said. "These are serious parameters, but we will manage."

Russia had expected a deficit of 3 trillion roubles ($103 billion), or 6.8% of gross domestic product this year, Reuters reported today.
(UpStreamOnline.com)

ENI'S BETRAYAL. (Il tradimento dell'Eni)

Europe should unite efforts to secure natural gas by linking the South Stream and Nabucco pipelines, officials at Italian energy giant ENI said.

European leaders should increase investments in infrastructure needed to secure "new sources" of natural gas from locations such as Turkmenistan, Kazakhstan and Africa, said Paolo Scaroni, the chief executive at Italian energy giant ENI.

Scaroni told delegates at the CERAWeek energy conference in Houston that diversity was the key to the global energy sector of the future.

"In the decade ahead, and probably well beyond that, the world energy scene will be increasingly dominated by the consumption of gas and the supply of gas," he said.

Scaroni said European leaders would benefit from linking rival pipeline projects Nabucco and South Stream, Russia's ITAR-Tass news agency adds.

"If only all partners decided to link the two, we would reduce operating costs and increase efficiency," he said.

A troubled relationship between gas host nation Ukraine and supplier Russia prompted a race to diversify the European energy sector.

The European Commission recently allocated billions of dollars to fund the construction of the Nabucco gas pipeline to move non-Russian gas through Turkey.

Moscow, meanwhile, aims to avoid Ukrainian territory with its South Stream gas pipeline through the Balkans.

ENI is a major partner in the South Stream project along with Russian gas giant Gazprom.

(UPI)

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Russia is not considering a proposal to combine part of its South Stream gas project with the Western-backed Nabucco pipeline, Energy Minister Sergei Shmatko said on Monday.

"We are not discussing such issues," Shmatko said.

Shmatko commented on a recent suggestion by Italy's Eni SpA, Gazprom's partner in the South Stream gas pipeline project, that combining some sections of the pipelines would cut costs and boost profits.

Eni CEO Paolo Scaroni was reported to say at a Cambridge Energy Research Associates conference in Houston on Wednesday that if all the partners decided to merge the two pipelines for part of the route, "we would reduce investments, operational costs and increase overall returns."

Shmatko also said Russia welcomed Europe's desire to diversify gas supply routes but did not consider the South Stream and Nabucco as rival projects.

Both South Stream and Western-backed Nabucco aim to supply natural gas to Southern and Central Europe. The South Stream project is designed to deliver up to 63 billion cubic meters of Central Asian and Russian natural gas under the Black Sea while Nabucco is intended to pump 31 billion cu m of natural gas from the Caspian region via Turkey.

Russian experts, however, are skeptical about the prospects of merging the two pipelines as Nabucco was originally designed to cut Europe's dependence on Russian natural gas deliveries.

(RIA Novosti)

COMRADE NURSULTAN (Il compagno Nursultan)

The Kazakh leader has negotiated to his colleague Giorgio Napolitano. The Presidents have discussed a wide range of issues. In particular, they have talked about the energy security of Europe and the special role of our republic in this issue. In addition, the heads of states have identified key directions of bilateral cooperation both in economic and political spheres. Italy is the third largest trading partner of Kazakhstan and the principal in the European Union. The Presidents have reported they are to sign an agreement on strategic partnership between Kazakhstan and Italy. This is a landmark event in the history of bilateral relations.

Giorgio Napolitano, President of the Italian Republic:
- Kazakhstan is a key state in Central Asia. Your republic is of exceptional importance for Europe, especially in matters of energy security. You will lead the OSCE the next year and it is a very important factor and a new stage in the development and strengthening of OSCE. I think that the status of the OSCE will rise from now on. I completely support the initiative of Nursultan Nazarbayev to convene, the OSCE heads of states for the big summit the next year. This is an excellent idea, because Kazakhstan is an example for the whole world. You have renounced nuclear weapons and you managed to create a tolerant society. It is very important in our time.

Nursultan Nazarbayev, President of the Republic of Kazakhstan:

- The Italian state is a major economic partner in the EU. One third of our trade turnover with Europe accounted for Italy. This is more than 14 billion dollars. Over the years, investments of Italian companies amounted to $4.5 billions, but the Kazakh companies have invested $1,5 billion.

(Khabar)

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Eni SpA (E, ENI.MI) Thursday said it signed a cooperation deal with KazMunaiGas for activities in Kazakhstan, as Italy's biggest energy company by revenue aims to boost its presence in the hydrocarbon-rich Caspian country.

The two companies signed a deal to jointly study the Isatay and Shagala exploration areas in the Caspian Sea, as well as industrial activities in Kazakhstan including a natural-gas sweetening plant, a gas-turbine power plant and the upgrading of the Pavlodar refinery.

Final investment decisions on these projects are expected within two years after the completion of detailed studies, Eni said.

The cooperation accord was signed in Rome in the presence of Italian Prime Minister Silvio Berlusconi and Kazakh President Nursultan Nazarbayev.

Eni is present in Kazakhstan with the large Kashagan oil field, which has been hit by delays and cost overruns. The company is also a cooperator in the Karachaganak field.
(Morningstar)

BERLUSCONI'S MOST IMPORTANT FLIRT (Il flirt più importante di Berlusconi)

Silvio Berlusconi and Vladimir Putin, meeting in St Petersburg, have given new impetus to the race to supply gas to Europe. The Italian prime minister is joining his Russian counterpart in pushing the South Stream project over another pipeline backed by the EU. The announcement followed discussions by video phone with Turkey’s Prime Minister Recep Tayyip Erdogan.

South Stream, said Putin, had to be constructed quicker than North Stream, a third pipeline that will run under the Baltic Sea and then pass through Scandinavia. The Russian premier said it was possible because the three countries already had experience working together on another building project on Turkish soil, the Blue Stream construction.

South Stream is a joint project involving Russia’s Gazprom and Italy’s ENI. After running under the Black Sea, two possible routes are being studied to supply gas to western Europe.
The agreement was sealed back in August during a one-day visit by Vladimir Putin to Ankara. The Turkish prime minister said he saw South Stream as a parallel rather than a rival project to the EU-backed Nabucco pipeline – as both would be needed in the future.

(euronews)

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The three leaders had a comprehensive talk concerning the South Stream pipeline project, which is to be constructed jointly by Russia’s Gazprom and Italy’s Eni. Putin remarked that issues with Turkey had been resolved, referring to the announcement earlier this week of Turkey’s decision to allow geological exploration in its Black Sea economic zone as part of the South Stream project.

Berlusconi, who is currently in Russia, mentioned on Wednesday the cooperation between Turkey and Italy in the field of technology and the helicopter manufacturing plant that is being established in Turkey through an equal partnership between Italy’s Agusta and a Turkish company. Italy is ready to establish similar partnerships with Russia, too, he added. Berlusconi had also attended talks during Putin’s visit to Ankara on Aug. 6.

PM Erdoğan held a teleconference with Russian and Italian prime ministers on energy issues.
Earlier this week, Turkey, Russia and Italy signed a memorandum of understanding on the Samsun-Ceyhan oil pipeline in Milan. The project will be carried out by the Trans-Anatolian Pipeline Company (TAPCO) in which Italian energy company Eni and Turkish company Çalık Energy each hold a 50 percent stake.

The South Stream project is set to eventually run from Russia to Bulgaria under the Black Sea before delivering gas to consumers in Europe. The pipeline, with an annual capacity of 63 billion cubic meters, is planned to be operational in 2016, costing $11.6 billion.

(Today's Zaman)

RUSSIAN-TURKISH BARGAINING CHIPS (Merce di scambio russo-turca)

Russian Prime Minister Vladimir Putin's August 6 visit to Ankara marked a new era for "enhanced multi-dimensional partnership," between Ankara and Moscow. Putin and Recep Tayyip Erdogan signed some twenty agreements covering energy, trade and other fields. Italian Prime Minister Silvio Berlusconi also attended part of the talks between Erdogan and Putin, considering the involvement of Italian companies in some of these projects. The most remarkable dimension of the various joint projects concerns energy cooperation, most notably Turkey's expression of support for Russia's South Stream project.

In oil transportation, Russia committed to participate in the planned Samsun-Ceyhan pipeline (SCP), connecting the Turkish Black Sea city of Samsun to the Mediterranean terminal Ceyhan. Turkey has solicited Russian participation in the SCP, which will bypass the congested Turkish Straits. Moscow has proven reluctant, and has instead promoted another bypass option through Burgas-Alexandroupolis between Bulgaria and Greece. Meanwhile, Turkey took further steps to make the SCP attractive for the Russian side, by linking this project with the Turkish-Israeli-Indian energy partnership.

Erdogan expressed his pleasure with the Russian decision to commit its crude. Ankara can consider this development as its greatest success in this grand bargain, given that Turkey has worked to convert Ceyhan, where the Baku-Tbilisi-Ceyhan pipeline also terminates, into a global energy hub. However, Putin did not rule out interest in Burgas-Alexandroupolis, and instead emphasized that the two pipelines might be complementary in meeting the growing demand for export routes. This statement raises questions about how committed Russia will be to the SCP, given that Russian companies own the majority of shares in the other Burgas-Alexandroupolis option.

In terms of gas cooperation, Turkey will allow Russia to conduct explorations and feasibility studies in the Turkish exclusive economic zone in the Black Sea, as part of Russian plans to construct South Stream. Since this move comes against the background of Turkey's decision to sign the rival Nabucco pipeline agreement last month, it raises many questions, as to how it will affect Nabucco, which Turkey considers a "strategic priority," as well as European energy security issues. Despite the questions surrounding its feasibility and high costs, as well as its negative implications for Nabucco, Erdogan maintained that both projects contribute to diversification efforts.

It appears that the "grand bargain" was between the SCP and Blue Stream. Ahead of the meeting, Yuri Ushakov, the Deputy Head of the Russian Government Staff said that "Turkey made concessions in South Stream and we made concessions in SCP," but added that he had doubts over the SCP's feasibility. A statement from Berlusconi's office also claimed that he had helped broker a rapprochement between both countries on these two issues. However, domestically, there are concerns that in this "exchange" of concessions, Turkey did not gain much. The SCP's importance was inflated, because it was developed by business interests close to the government. Another gas deal concerned Ankara's request to renew the contract under which it purchases Russian gas through the Western pipeline via the Balkans. Erdogan announced that the contract (which expires in 2011) will be renewed for 20 years. Turkey had complained about the high prices and the leave-or-pay conditions in its gas deals with Russia. Putin said it was renewed on favorable terms to Turkey, but the contract's details are unclear.

Erdogan also said that they discussed the extension of Blue Stream II to transport Russian gas to Israel, Lebanon and even Cyprus. Blue Stream, running underneath the Black Sea, is the second route carrying Russian gas to Turkey. Moscow previously raised the possibility that it could use Blue Stream II in order to transport gas to Europe, but this option was rejected, since it contradicted Nabucco and Russia sought to use Turkey only as a transportation route. Now, Ankara wants to revive it as part of a North-South corridor. Based on the leaders' statements, it appears that the existing capacity of Blue Stream might be improved and gas could be transferred to the Mediterranean through this pipeline.

However, although Erdogan praised this development as another major success, there is no guarantee that Russia will grant "re-export rights," which indicates that if Blue Stream II is implemented, Moscow will continue to view Turkish territory as a mere conduit for its gas, which raises the question: how will Turkey benefit from the agreement? Russian priorities also involve Turkey's first nuclear power plant tender, which was awarded to a Russian-Turkish consortium. As the original price was too high, the tender has long awaited cabinet approval. Meanwhile, the Russian side lowered the price, and offered a compromise. Prior to Putin's visit, it was expected that with further "bargaining," a final deal might be reached, but apparently it failed. Nevertheless, Ankara and Moscow signed protocols regarding energy cooperation, including the use of nuclear energy for peaceful purposes, early notification of accidents, exchange of information on facilities, and to continue talks on the nuclear tender.

The most controversial development is perhaps Ankara's support for South Stream. Erdogan reiterated his belief that Nabucco and South Stream are complementary, yet turned a blind eye to several Russian officials' (including Putin) statements to the contrary. It is assumed in Ankara that growing European energy demand will accommodate both projects; but this ignores the competition between both projects over the same downstream markets. Moreover, the Turkish side fails to appreciate the challenges Russia is facing in investing in its domestic gas industry, and acts on the assumption that "Russia has enormous reserves," while failing to realize that Russia is also planning to tap into the same upstream producers, namely Central Asian and Caspian gas, just as the Nabucco project envisages.

Putin also added that a consensus was reached on Russia building gas storage facilities in the Salt Lake. Taken together with the announced joint investments between Turkish and Russian firms, including Gazprom, it is unclear whether the Turkish government recognizes the consequences of these decisions. Russia has effectively used the practice of co-opting the gas infrastructure of transport and consumer countries, as part of its efforts to monopolize downstream markets. It is unclear how this penetration into the Turkish grid might affect Ankara's future energy policies.
(Jamestown)