* LNG seen as alternative to underwater section
* Energy Ministry cites risks posed by EU energy laws
* Says LNG provides more flexibility
(Adds quotes, background)
By Gleb Bryanski
MOSCOW, March 10 Russia said on Thursday it may
drop plans to lay an underwater section of the South Stream gas
pipeline and build a liquefied natural gas plant instead,
citing risks posed by new European energy rules.
An Energy Ministry statement said "the possibility of
construction of an LNG plant on the Black Sea coast is being
considered as an alternative to the underwater part of the
South Stream pipeline."
"The realisation of the South Stream project carries
certain risks of external nature, linked to the so-called Third
Energy Package coming into force," the ministry said.
The new rules impose limits on the ownership of EU pipeline
infrastructure by gas suppliers and call for the "unbundling"
of over-concentrated ownership. Under the rules, Russia could
be forced to sell off some of its pipeline network in the EU.
Russian Prime Minister Vladimir Putin openly confronted the
EU leadership over the package, calling it "robbery" and
warning that the rules could drive gas prices higher.
The Energy Ministry said risks concerned property rights
for gas pipelines, uncertainty over volumes, lack of
consumption forecasts as well as the EU's determination to
develop alternative energy sources.
The statement from the Energy Ministry sought to clarify
the outcome of a meeting Wednesday between Putin and Energy
Minister Sergei Shmatko at which the idea was first floated.
Putin has until now backed the $21.5 billion South Stream
link to transport up to 63 billion cubic metres of gas to
central and southern Europe. Russia plans to launch the
pipeline in 2015, while the LNG option has never been
The decision represents a major shift in Russia's energy
policy, which until now was firmly in favour of building
The Russian initiative comes amid disruptions of Libyan gas
supply to Italy, seen as the main consumer of South Stream gas,
which forced the country to buy more gas from Russia's gas
export monopoly Gazprom (GAZP.MM).
South Stream is controlled by Gazprom and Italian group Eni
(ENI.MI), with French power company EDF SA (EDF.PA) also
holding a stake. The pipeline will go through Turkish and
Bulgarian territorial waters in the Black Sea.
The ministry said LNG produced at a future Total (TOTF.PA)
and Novatek NOTK.MM plant in the Arctic could also be used
for deliveries to South Stream partners.
South Stream competes with OMV's (OMVV.VI) $11 billion
Nabucco pipeline, which is also due for launch in 2015 and is
backed by the European Union.
Two routes for the land section are currently under review
-- through Greece and Italy, which is seen as the main
customer, or through Bulgaria, Serbia and Hungary towards
Slovenia and Austria.
The ministry said the "flexibility of LNG deliveries"
allowed it to have "dialog with all the countries in the Black
Sea area both over deliveries for domestic consumption as well
as transit to final customer."
Turkey's prime minister, Tayyip Erdogan, is expected to
visit Moscow next week for energy talks, while Putin will go to
Slovenia and Serbia, both potential buyers of South Stream gas,
later this month.
FACTBOX on gas pipeline projects to Europe [ID:nLDE7221CA]
(Additional reporting by Vladimir Soldatkin; Editing by Walter