South Stream Signed, but Where's the Gas?

Gazprom has officially signed agreements to realize South Stream with Bulgarian Energy Holding, Greece's DESFA and Serbijagas. According to Kremlin spokesman Dmitry Peskov, Eni and Gazprom will not sign a long waited agreement, but a memorandum of cooperation to map out future steps. Apparently, Eni is not as happy as its Bulgarian, Greek and Serbian counterparts. It wants to market gas from the pipeline in the countries the pipeline will pass through. However, Gazprom only offers the right to bring gas into Italy and a role in managing the pipeline.

According to a Gazprom official, South Stream will be implemented regardless of the situation of Nabucco. He added that "all the activity around the Southern Corridor / Nabucco is often initiated by politicians overseas because it is a political rather than an economic project. It has no influence on the realization of South Stream because from the very beginning companies, rather than politicians thought it is a reasonable commercial project."

Alfa Bank reports that on May 10, Gazprom's production was 0.975 bcm/day, its lowest level since 1983. Domestic demand in December-April was down 8-12% year-on-year, while exports to Europe were down by 21% year-on-year during the first five days in May (USRBC Daily Update, May 13).

Ultimately, the pipeline will have capacity of 30 bcm. Considering the Gazprom is producing gas at Andropov era levels, it is hard to see the commercial viability of this €10+ billion project.