South Stream Cancellation Means Anxious Wait for Pipemakers

Russia's decision to scrap the South Stream natural gas pipeline to Europe has left pipeline makers from Japan to Germany awaiting the fate of deals worth 1.8 billion euros ($2.24 billion).

Their hopes are pinned on an alternative pipeline that President Vladimir Putin has proposed building to Turkey instead of South Stream's planned route across the Black Sea to Bulgaria.

"If the new pipeline to Turkey is given the green light, the pipeline makers won't lose anything ... just the volumes (of pipelines) should be recalculated," said Ivan Shabalov, head of the Russian Pipemakers Association lobby group.

Russian gas exporter Gazprom had signed deals for two of the four stages of South Stream.

Plans for the 2,400-kilometre (1,491-mile) pipeline, which Gazprom had expected to open by 2018, called for an annual capacity of 63 billion cubic metres of gas, enough to supply almost 15 percent of Europe's annual demand.

Germany's Europipe was supposed to supply half of the pipes for the first stage, with Russia's United Metallurgical Company (OMK) and Severstal's Izhora Pipe Mill providing the rest of it.

Shabalov said Russian pipe suppliers had delivered the pipes for the first stage and received their money. Europipe did not reply to emailed questions.

For the second stage, Gazprom had signed deals with Japan's Marubeni (MARUF) , Itochu (ITOCY), Sumitomo (SSUMF) as well as with OMK and Severstal. These pipes have not been delivered.

Italian oil services group Saipem has been notified of a suspension of activities which include pipe-laying operations. Its chief executive has said that could mean a loss of 1.25 billion euros in revenue in 2015.

The pipe producers are still awaiting information.

"We have not received notifications ... Our firm has not begun pipe supply to the project company yet," Sumitomo said by email.

Kirill Molodtsov, Russia's deputy energy minister, told reporters on Thursday that the first stage of the proposed pipeline to Turkey could be built in some 2.5-3 years, including preparation of all necessary documentation.

South Stream Transport, operator of the project, declined to comment.


By Svetlana Burmistrova and Osamu Tsukimori, Writing by Vladimir Soldatkin