December 28, 2011 / 9:18 AM / 8 years ago

UPDATE 2-Turkey, Russia reach South Stream gas deal

* South Stream to supply Europe with 63 bcm/yr from 2015
    * Russia to up sales to Turkey in 2012 by 2 bcm
    * South Stream to strengthen Russia in talks with Ukraine

 (Adds detail, analyst comments, combines datelines with MOSCOW)	
    By Orhan Coskun and Gleb Bryanski	
    ANKARA/MOSCOW, Dec 28 (Reuters) - Turkey gave Russia
permission on Wednesday to build the South Stream pipeline
through its territory, supplying the missing piece needed by
Moscow to secure markets for its gas in Europe at the possible
expense of Brussels-backed rivals.	
    The South Stream project could jump ahead of the European
Union-backed plan for the Nabucco pipeline to cut Europe's
dependence on Russia by bringing gas from Azerbaijan and central
Asia. It also would allow Russia to bypass Ukraine, in the past
a pinch point for Russian gas on its way to Europe.	
    South Stream must pass through the territorial waters of
Turkey, which is also a Nabucco participant, to reach southeast
    "I would like to thank the government of the Turkish
republic for its decision to permit construction of the South
Stream pipeline in Turkey's economic zone," Russian Prime
Minister Vladimir Putin said at a ceremony in Moscow.	
    It was an unexpected move by Turkey, one of Russia's biggest
gas customers, which in November appeared to turn away from
Russia when it announced it would not extend a contract with
Gazprom, Russia's gas export monopoly for 6 billion
cubic metres of gas per year.	
    In what appeared to be a package deal, Turkish Energy
Minister Taner Yildiz provided the permission required to build
the pipeline through Turkish territorial waters, while Gazprom
Chief Executive Alexei Miller said the company would extend two
longstanding gas deals that would effectively boost supplies to
Turkey by 2 billion cubic metres (bcm) from 25 bcm.	
    That will include 3 bcm to be supplied via the Western Line
pipeline, which passes through Ukraine, Romania and Bulgaria.
Turkey had been planning to reduce supplies via the Western
    Miller had met Yildiz in Ankara on Tuesday.	
    It was unclear whether Gazprom made concessions in exchange
for South Stream.	
    After overestimating its gas needs in previous contracts,
Turkey has been drawing far less than it had contracted under
long-term take-or-pay deals. At the same time, it has been one
of a growing number of consumer countries asking Gazprom to cut
its prices.	
    Analysts say the project, for which Gazprom allocated around
10 billion euros ($13.1 billion) in its investment programme for
2012-2014, is too costly and motivated by the desire to win
political influence over Europe through supply links with
strategic countries. 	
    Gazprom owns 50 percent of the South Stream project, which
is designed to carry 63 bcm per year of Russian gas to Europe. 
Italy's Eni has 20 percent, and France's EDF 
and Germany's Wintershall each own 15 percent. 	
    "I would like to express special gratitude to our Turkish
friends for the constructive efforts and understanding,
especially for prompt examination of all issues during the last
days of the outgoing year," Miller said in a statement.	
    Turkey's acquiescence comes at a sensitive time for the
region's energy producers and consumers, who are in the midst of
charting a variety of routes for gas to flow to Europe from
Russia and the Caspian Sea region for the coming decades.	
    Talks between Russia and Ukraine broke down this month after
months of failure to reach an agreement on joint control of the
pipelines that currently carry more than half of Europe's gas
and have been used in the past as a weapon in price wars between
Moscow and Kiev.	
    Ukraine lost leverage in the talks in November when Russia's
new northern undersea gas route, Nord Stream, launched
deliveries of gas direct to Germany, rerouting up to 27.5 bcm
per year of gas from Ukraine's transit pipelines.	
    Before Nord Stream, Russia last year shipped around 110 bcm
of gas via Ukraine, around 80 percent of its flows to Europe.	
    Azerbaijan is due to decide on an export route for new gas
from the second phase of the giant Shah Deniz gas field from a
field of options including Nabucco, two routes through Greece
which are in doubt because potential financing difficulties, and
another proposed at the last minute by Shah Deniz partner BP
    Gazprom, which has in the past denied a link between the
Ukraine talks and South Stream, changed its line after talks
collapsed last week. The Russian company has suggested price
concessions could be in the offing with a pipeline deal, a
potential boon to Ukraine's stretched finances.	
    In the past, price disputes with Ukraine have come to a head
at the beginning of the new contract year on Jan. 1, although
Russian and Ukrainian officials have repeatedly said there was
no prospect of a New Year's "gas war" this year.	
    ($1 = 0.7654 euros)	
 (Writing by Daren Butler and Vladimir Soldatkin, editing by
Melissa Akin and Jane Baird)
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