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Germans give South Stream major boost

disclaimer: image is for illustration purposes only
by Stefan Nicola
Berlin (UPI) Mar 23, 2011
The Russian-led South Stream pipeline project has been given a significant boost when it was joined by Wintershall, the oil and gas arm of German chemicals giant BASF.

Officials from Wintershall and Russian energy giant Gazprom Tuesday signed a preliminary agreement that foresees the Germans buying a 15 percent stake in South Stream for an estimated $2.8 billion.

The pipeline was jump-started by the Kremlin to bypass traditional transit countries Ukraine and would move more than 60 billion cubic meters of natural gas per year under the Black Sea to customers in Western Europe.

Russian Prime Minister Vladimir Putin, who was present at the signing ceremony in Moscow, said Wintershall's commitment lent South Stream further stability. He also lauded German Chancellor Angela Merkel for personally backing the deal.

Alexander Rahr, a senior energy and Russia expert with the German Council on Foreign Relations, a think tank, said Wintershall's entry is good news for South Stream's economic feasibility.

"Every Russian Europe-bound pipeline needs a big German partner and BASF/Wintershall is a significant player," he told United Press International in a telephone interview Wednesday.

Having secured corporate and, according to Putin, political backing from Europe's largest economy, South Stream's standing in Brussels could very well improve over the coming months.

Analysts have accused Russia of launching South Stream to torpedo Nabucco, a project backed by the European Union and the United States that would transport up to 31 billion cubic meters of Caspian and Middle Eastern gas per year to Europe, bypassing Russia to diversify Europe's energy import structure.

The South Stream consortium members deny trying to undermine Nabucco, arguing their pipeline makes economic sense. Experts have questioned whether there is room for both projects as they vie for similar sources and customers, yet a possible demise of nuclear power in Japan and at least parts of Europe could boost the gas demand significantly.

"There's no question that Japan will need more liquefied natural gas, so that means the possibility that Nabucco and South Stream can coexist has slightly improved," Rahr told UPI.

Tuesday's agreement, if finalized, would further deepen the relationship between state-controlled energy giant Gazprom and Wintershall, a firm eager to move into the Russian upstream business.

The companies earlier this month signed a memorandum of understanding that hands the Germans a stake in the development of fields in western Siberia for giving Gazprom access to Wintershall's oil and gas projects in the North Sea.

"So this is about more than just pipelines," Rahr said.

Wintershall is also involved in the Gazprom-led Nord Stream pipeline, currently being built to move gas under the Baltic Sea from Russia to Germany. Nord Stream also bypasses traditional transit countries Ukraine and Poland.

The deal with Wintershall comes as Russia is trying to convince Turkey to have the South Stream pipeline cross its territorial waters in the Black Sea. So far, Ankara has refused, saying it needed more documentation on economics, routes and environmental impact.

If Turkey holds on to its "No," Russia does have alternatives.

It could liquefy the gas -- either at the Black Sea coast or directly at the source field -- transport it in LNG carriers to Bulgaria, re-gasify it there and pump into a slightly shorter South Stream pipeline that would then cross the Balkans into Western Europe.

"Either way, South Stream will be built," Rahr said, suggesting that the good news from Germany for now silence the skirmishes with Ankara.

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