Gazprom Starts South Stream Pipeline Construction in Bulgaria

OAO Gazprom (GAZP) started building the Bulgarian section of the South Stream pipeline, which will ship natural gas across the Black Sea and Bulgaria to Europe.

By the end of the year Gazprom will start building the Serbian part, Gazprom Chief Executive Officer Alexey Miller told reporters in Sofia today. The Bulgarian section will be 540 kilometers (335 miles) long and will cost 3.5 billion euros ($4.8 billion), Energy and Economy Minister Dimitar Stoynev said at the same briefing.

“We are starting the construction of the pipeline in Bulgaria today,” Miller said. “Bulgarian consumers will have the first gas deliveries in December 2015. This project will contribute to Europe’s energy security and help reduce prices as the fuel will be delivered directly into the European Union.”

The link will help bypass current pipelines to Europe traveling through Ukraine that have been disrupted in recent years over arguments between that country and Russia.

South Stream will run also through Hungary, Slovenia and northern Italy with offshoots potentially to Greece, Croatia, Montenegro and Macedonia. It will carry 63 billion cubic meters of gas by 2019, when all four lines are operational, according to Gazprom. Underwater construction of the pipeline began in December 2012 from Russia along the Black Sea floor to Bulgaria, and the first line, which will be able to ship 15.8 billion cubic meters a year, will be finished in two years.

Gazprom Loan

Bulgarian Energy Holding, which groups state utilities, will borrow about 620 million euros from Gazprom at a 4.25 percent interest for 22 years, Stoynev said. The dividend from the pipeline’s operation will be used as collateral for the loan, Stoynev said. Bulgaria will receive an annual dividend of 715 million euros starting in 2018, when the pipeline reaches full capacity, he said. Gazprom and Bulgaria also agreed to grant access to the pipe to other suppliers, in line with EU requirements.

Gazprom pumps 17.8 billion cubic meters of gas a year to Bulgaria via Ukraine and Romania. The rest goes on to Turkey, Greece, and Macedonia under a 30-year contract signed in 2006. Bulgaria spends as much as 1.4 billion euros a year on gas imports.

The link may compete with the OMV AG-led Nabucco pipeline that envisions pumping Caspian Sea gas to Europe via Turkey and Bulgaria.

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

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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