Gazprom, Bulgaria Sign Accord to Build South Stream Pipe Under Black Sea

OAO Gazprom, Russia’s gas export monopoly, agreed to a joint venture with Bulgaria’s state utility to run the Balkan country’s section of the planned South Stream gas pipeline to central and southern Europe.

Gazprom Chief Executive Officer Alexei Miller and Bulgarian Energy Holding Executive Director Maya Hristova signed the agreement today in Sofia, Bulgaria’s capital. Miller is part of a delegation accompanying Prime Minister Vladimir Putin, who discussed energy projects with his Bulgarian counterpart, Boiko Borissov.

Bulgarian Energy Holding and Gazprom’s 50-50 partnership will design, build and operate the section of gas pipeline, with construction slated to start in 2013. The link under the Black Sea, which bypasses Ukraine, may carry 63 billion cubic meters of gas a year to the European Union as different projects compete to supply the fuel. Bulgaria and Romania are competing on land routes to host South Stream.

“We offered to build a pipeline system directly from the Russian coast to the Bulgarian coast and ensure stable energy supply to Bulgaria and Southern Europe, and minimize and remove any transit risks,” Putin told reporters after the signing. “Material benefit for Bulgaria is obvious.”

Bulgaria may gain 2 billion euros ($2.7 billion) a year in transit fees from the South Stream gas pipeline, Putin said at the same briefing.

Ahead of Schedule

Bulgaria is also backing the OMV AG-led Nabucco pipeline project, which aims to bring gas from the Caspian Sea region and the Middle East to Austria via Turkey, and reduce Europe’s reliance on Russian fuel. Ukraine, which ships about 80 percent of EU-bound Russian gas, has said South Stream is “wasteful.”

The South Stream project may be completed four months earlier than its current target of Dec. 31, 2015 as work is ahead of schedule, Miller said at the same briefing. South Stream’s costs will be determined in the first quarter of next year, and Gazprom is prepared to advance payment for work on the Russian-Bulgarian joint venture, Miller said.

The link will boost the amount of Russian gas transported through Bulgaria by five times, he said, up from the 13 billion cubic meters shipped in 2009 to Greece and Turkey via the Soviet-era pipeline that passes through Ukraine and Romania.

Gazprom is considering routes through Bulgaria and Romania to eastern, central and southern Europe. Romania hasn’t yet agreed to take part in South Stream.

The Russian gas producer may cut gas prices for supplies to Bulgaria by 5 percent to 7 percent by the end of 2012, according to government documents distributed today before Putin’s visit. Gazprom and Bulgargaz EAD, Bulgaria’s state-run trader, plan to sign a long-term supply contract by June 30.

“Negotiations are ongoing,” Miller said.

Editors: Torrey Clark, Keith Campbell.

To contact the reporter on this story: Anna Shiryaevskaya in Sofia at ashiryaevska@bloomberg.net; Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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