Gazprom Revives Pipe Order as Russia Switches to Turkish Link

Russia’s OAO Gazprom revived a massive contract to buy thousands of meters of steel pipes, suspended when President Vladimir Putin scrapped the South Stream pipeline to Europe last year.

The decision to resume purchases of more than 150,000 metric tons of pipe from German steelmaker Salzgitter AG’s Europipe venture shows Gazprom is near to starting an alternative project across the Black Sea, linking Russia with Turkey.

Europipe will start shipping pipes for the Turkey link because preparation work for construction has started, Gazprom spokesman Sergei Kupriyanov said by text message on Monday. The start date for pipe laying is yet to be announced, he said.

Gazprom scrapped the $45 billion South Stream project last year as the European Union’s relationship with Russia sank to a post-Cold War low over the conflict in Ukraine. The gas exporter said it would build the new link to Turkey instead as it looks for routes to bypass Ukrainian pipelines from 2020.

“The new move shows that Russia doesn’t want to waste time,” said Alexander Kornilov, an energy analyst for Alfa Bank in Moscow. “Gazprom may build a line for the Turkish market -- as it initially planned -- and by that time agree with the European states on building a new network to replace the Ukrainian transit route.”

Parallel Lines

Gazprom plans the new link to include four parallel lines with total capacity of as much as 63 billion cubic meters per year, one of which would supply Turkey. The rest would feed the EU through a network stretching into Greece and on into central Europe.

South Stream signed contracts with more than a dozen companies from Germany to Japan before it was scrapped. Those included deals for construction and services.

Gazprom said last year it would use most of the investments already made in South Stream in the Turkish link. A government agreement with Turkey on the new pipeline could be signed in the second quarter, it said in January.

While Gazprom is close to agreeing on the link with Turkey, Greece and Hungary, it’s “still a big question” if the EU would have a network to receive the fuel via the new route by 2020 given today’s political tensions, Kornilov said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE