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Putin Studies Black Sea LNG Plant as Part of South Stream

Russian Prime Minister Vladimir Putin said the world’s largest natural gas exporter will study building a plant to liquefy natural gas on the Black Sea as part of the country’s South Stream project to ship fuel to Europe.

The European Commission suggested shipments of LNG may be an alternative as OAO Gazprom prepares to build the pipeline to the European Union via the Black Sea, avoiding Ukraine and Turkey, Energy Minister Sergei Shmatko said today, according to the Russian government website. LNG is gas chilled to liquid form for transit in tankers.

Price disputes with Ukraine, through which Russia ships about 80 percent of its gas to Europe, led Gazprom to switch off supply twice since 2006, disrupting flow to the region at the height of winter. Russia plans to begin deliveries in October via Nord Stream, a northern route to Europe via the Baltic Sea, avoiding Belarus. Putin in 2005 called the former Soviet states through which Russia ships gas “parasites.”

“Putin is obsessed with his idea of ‘parasite-free’ gas exports,” said Mikhail Korchemkin, head of East European Gas Analysis, a Malvern, Pennsylvania-based industry consultant. When it comes to Putin’s goal to free up access to European markets, “money is no object,” he said.

The European Commission has not proposed an LNG terminal on the Black Sea, Marlene Holzner, spokeswoman for energy at the commission, said in an e-mail today.

“This was not discussed during the meeting between the Russian government and the EU Commission in Brussels end of February,” Holzner said.

Bosporus Route

Europe plans to build additional terminals to re-gasify LNG, Shmatko said, citing the February summit. LNG transit costs become equivalent to that of pipeline transit over distances more than 2,500 kilometers (1,500 miles), Putin said today, according to the website. The only sea route to Europe from the Black Sea within that range is through the Bosporus Straits.

Turkish Energy Minister Taner Yildiz said Jan. 7 that the volume of energy traffic through the Bosporus is already unsafe for Istanbul’s population of 12 million. Turkish authorities are consulting oil and shipping companies on ways to reduce traffic and make bypass pipelines more economically feasible, he said.

“I am not sure about the economy of this idea, because there aren’t many regional gas sources and it would have to be pumped from West Siberia,” Artem Konchin, an oil and gas analyst at Unicredit SpA, said by e-mail today. “At the same time if the South Stream gets the final go-ahead, it would not make much difference for them to deliver enough gas to supply the plant and the pipeline.”

Rival Projects

Gazprom should give up the 63 billion-cubic-meter-a-year pipeline plan in favor of a 12 billion-cubic-meter-a-year LNG plant because the demand does not exist for all the pipeline capacity Gazprom is building to Europe, Korchemkin said.

Russia’s South Stream project is competing with the European Union-backed Nabucco project, which aims to deliver Caspian gas to Europe via Turkey, bypassing Russia. Azerbaijan is also considering rival projects to supply Caspian gas to the Georgian Black Sea coast to be liquefied or condensed and transported to Bulgaria and Romania.

“Black Sea LNG may be aimed at derailing the Azeri-Georgia-Romania Interconnector,” Korchemkin said.

A Gazprom spokesman, who declined to be identified citing company policy, wouldn’t comment when contacted by Bloomberg News.

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