Putin advances South Stream pipeline building to 2012

(MOSCOW) - Prime Minister Vladimir Putin on Friday brought forward to 2012 the date for starting construction of the South Stream pipeline that aims to deliver Russian gas to Western Europe while avoiding Ukraine.

Putin's announcement marks an acceleration of the timetable for building the hugely ambitious pipeline and comes after Moscow won agreement from Ankara this week to lay the pipeline under Turkish waters.

"I think it would be desirable to start (construction) at the end of next year," Putin told the chief executive of Russian gas giant Gazprom Alexei Miller at a meeting at his Novo-Ogaryovo residence outside Moscow.

"Very good, Vladimir Vladimirovich," Miller replied. "We will do it this way."

Miller told Putin that the total cost of the pipeline was estimated at 16.5 billion euros (over $21 billion) -- 10 billion euros for building the pipeline across the Black Sea and 6.5 billion for its construction on land.

He 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 later confirmed that Miller had ordered the start date for the construction of the pipeline to be brought forward to 2012 from the original intended start date of 2013. The first gas should be pumped from 2015.

South Stream is a key strategic project for Russia, which will allow it to pump gas to the European Union via the Black Sea and the Balkans without using Ukraine's gas transit network.

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

Putin had announced this week after talks with Turkish Energy Minister Taner Yildiz that Turkey had issued final approval to construct the South Stream pipeline through its waters.

"We took a very important step with our Turkish friends," Putin told Miller.

The project was originally conceived jointly by Gazprom and the Italian energy firm ENI. In September, they were formally joined in the consortium by Germany's Wintershall and the French power producer EDF.

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.

Miller said that agreements had now been signed with all the transit states and work on the pipeline was already at the planning stage.

"All the work is being carried out strictly according to the timetable so that there is no danger of failing to meet our deadline -- the pumping of the first gas from the end of 2015," he said.

Russia has until now sent most of its gas to Europe through Ukraine, a dependence that had disastrous consequences for EU consumers in January 2009 when a row between Moscow and Kiev resulted in a cut in supplies.

Miller told Putin that Ukraine had valued its gas transit network at 20 billion dollars, a sum he described as "quite large" given that the cost of modernising its pipelines had been put at 2-8 billion euros ($2.5-10 billion).

Putin said that for all its problems, Ukraine's gas transit network would remain "in demand", especially as European gas consumption was going to increase as some EU states scale back or abandon their use of nuclear energy.

"I hope that Ukraine is going to remain our strategic partner," Putin said.