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MENAFN - AFP - 07/12/2012

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(MENAFN - AFP) President Vladimir Putin on Friday launched construction of the long-awaited South Stream pipeline that the Kremlin hopes will pump Russia's gas to Europe while avoiding its unpredictable neighbour Ukraine.

The pipeline will flow underneath the Black Sea and through the Balkans to supply energy giant Gazprom's big European clients with Russian gas and ensure the security of its energy exports.

At the ceremony held at gas giant Gazprom's compressor station outside the Black Sea city of Anapa Putin promised unconditional deliveries to energy consumers before a crew symbolically welded two pieces of the pipeline together.

"South Stream creates conditions for stable, unconditional deliveries of Russian gas to our main consumers in Southern Europe," the Russian president said.

"This event is important not only for Russia's energy market, but for the entire European energy market," he told an audience that included ENI chief executive Paolo Scaroni and EDF head Henri Proglio, Gazprom's main partners.

South Stream was lobbied as an alternative to the conventional gas route to Europe through Ukraine, and EU clients are keen to avoid a repeat of the winter of 2009 when a bitter spat between Moscow and Kiev over gas prices caused cutoffs.

The project is of huge personal importance for Putin and in a sign of his serious intent he ordered Gazprom chief executive Alexei Miller to bring the launch date forward to 2012 from 2013.

Putin promised that the project would not harm the Black Sea, one of Russia's prime resort destinations.

"I have no doubt that there will be no damage to the Black Sea, while research will help safeguard the environment," he said.

Environmental groups have criticised the placement of Gazprom's station near Anapa, whose sand beaches are a traditional retreat destination for children.

South Stream has also faced criticism for taking the ambitious option of building an entirely new pipeline rather than upgrading existing infrastructure in Ukraine.

Kiev's political relations with Moscow have fluctuated wildly in recent years while analysts say the Ukrainian gas transit network is in urgent need of modernisation.

South Stream is estimated to cost 16.5 billion euros (21.5 billion). Its planned capacity is 63 billion cubic meters per year, with the underwater part of the pipeline spanning 900 kilometres.

Gazprom said Russia would be paying around 7.5 billion euros of the pipeline's construction given that state-controlled Gazprom has a 50 percent share in the project.

Gazprom's Miller said that the first gas deliveries via the pipeline were planned for December 2015, calling the launch a "historic event".

The EU is also backing a rival project called Nabucco, a planned pipeline project to bring Caspian gas to Europe and regarded with the greatest of suspicion by Russia.

Gazprom's project was originally conceived jointly with the Italian energy firm ENI and they were later joined in the consortium by Germany's Wintershall and the French power producer EDF.

Russia also won crucial approval from Ankara to construct the South Stream pipeline through its waters.

After exiting the Black Sea, the pipeline is due to cross Bulgaria, Serbia, Hungary and Slovenia and then Austria to connect with the main European pipeline network.

South Stream is being built by a consortium owned 50 percent by Gazprom, 20 percent by ENI, 15 percent by EDF and 15 percent by Wintershall.

Russian gas deliveries currently represent a quarter of the European Union's total gas needs.

Maria van der Hoeven, executive director of the International Energy Agency, praised Russia for undertaking the project in a fast-changing environment.

"Investing in a major new infrastructure project on the promise of a brighter future for European gas could be seen as a brave choice," she told reporters in Russia late Thursday.

"South Stream represents many things to many people, but it would also be a vote of confidence in the future of European gas."


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