South Stream evaluated at 15.5bn euros

Gazprom has posted new parameters of the South Stream project costs that now are planned to reach 15.5bn euros based on the pipeline's transportation capacity of 63bn cu m of gas per year. Construction of the first line is to finish by the end of 2015.

There are still quite a lot of questions about the project. In particular, there is a feeling that the cost of South Stream is constantly adjusted to the current conjuncture and it regularly changes in statements of Gazprom managers. Initially the cost of about 8bn euros was mentioned that later was revised to 24bn and then again dropped to some 8.6bn; now the project costs 15.5bn. There have been no fundamental changes to South Stream over the past few years - the negotiations unfolded gradually, agreements with transit states were signed but there was nothing fundamentally new that would cause changes in its cost by dozens of billions of euros or dollars. It should be mentioned that some independent experts even said South Stream's real cost might exceed $30bn. Such opinions could be ignored if Gazprom was consistent in assessing one of its most important projects.

It is not ruled out that another downward correction in South Stream's cost (compared to 24bn euros mentioned in recent discussions) is aimed at solving a psychological task, which is to convince sceptics and states transiting Russian gas (first of all Ukraine) of South Stream project's feasibility. On the eve of another round of negotiations on the fate of the Ukrainian gas transportation system Kiev is probably signaled that although South Stream is expensive but not overly expensive, it can be really built, if the Ukrainian side is stubborn on the GTS issue. However, there is a problem - Kiev may also read this game of changes in South Stream's cost considering this pipeline project rather as bluffing. 

By Stanislav Mitrakhovich, NESF leading expert