Russia, the key sponsor of the South Stream gas transit pipeline passing through Bulgaria, has indicated that the project's underwater section might be replaced with liquefied natural gas (LNG) terminals on the Black Sea.

The Russian leadership is considering the construction of a terminal for liquefied natural gas (LNG) as part of the South Stream gas transit pipeline instead of laying 900 km of pipes through the Black Sea.

Russian Prime Minister Vladimir Putin has instructed Energy Minister Sergey Shmatko to explore the options for the building of a LNG terminal on the Russian Black Sea coast as an alternative to constructing an underwater pipeline from Russia to Bulgaria, Interfax reported.

According to a source from the Russian Energy Ministry, the potential LNG terminal will process natural gas not only from Gazprom, but also from Rosneft and Lukoil; according to Putin, it would open new options for Russia to diversify its markets.

The estimates of the Russian government have indicated that if the liquefied natural gas terminal is chosen over the underwater pipeline, the investors in South Stream will save a substantial sum of money.

If Russia's Gazprom and the other investors in the project – the Italian company ENI and the French EDF – decide to go for the LNG terminal option in the Black Sea section, this will mean that Bulgaria will also have to build a LNG terminal on its coast in order to receive the liquefied natural gas by ships from Russia.

Bulgaria has been mulling the construction of a LNG terminal for several years now, but was more likely to take part in the building of such a terminal in Greece or Turkey. Should a LNG port be set up on the Bulgarian Black Sea coast as part of the South Stream project, it is likely to be used to import gas from other sources such as Azerbaijan and Qatar.

It is yet unclear how exactly the Russian LNG terminal plans will affect Bulgaria's role in South Stream.

Romania, which has been hoping to replace Bulgaria as the Balkan hub of the Russian project, is already on the way to construct a LNG terminal on its Black Sea as part of its AGRI participation, Azerbaijan-Georgia-Romania Interconnection, a natural gas transit scheme to which Hungary joined recently. If the Russians adopt the LNG option, this could technically allow them to transport their natural gas for South Stream not only through a Bulgarian LNG terminal but through a Romanian one.

South Stream is a proposed gas pipeline to transport Russian natural gas to the Black Sea to Bulgaria and further to Italy and Austria. The project would partly replace the planned extension of Blue Stream from Turkey through Bulgaria and Serbia to Hungary and Austria, and is seen as rival to the planned Nabucco pipeline, sponsored by the EU.

In November 2010, after months of exhausting talks, Bulgaria and Russia signed an intergovernmental agreement for the construction of the Bulgarian section of the South Stream gas transit pipeline in the presence of their Prime Ministers, Boyko Borisov and Vladimir Putin, in Sofia. The ownership of the Russian-Bulgarian joint company to build and manage the Bulgarian South Stream section will be split 50-50%.

The South Stream gas transit pipeline is supposed to be ready by 2015, spanning 3 600 km. Its construction is expected to cost between EUR 19 B and EUR 24 B. It will be transporting 63 billion cubic meters of natural gas annually, or 35% of Russia's total annual natural gas export to Europe.

According to the existing plans, the South Stream pipe will start near Novorosiysk on the Russian Black Sea coast, and will go to Bulgaria's Varna; the underwater section will be 900 km long.

In Bulgaria, the pipe is supposed to split in two - one pipeline going to Greece and Southern Italy, and another one going to Austria and Northern Italy through Serbia, Croatia and Slovenia.

The project was initiated by Gazprom and the Italian company Eni, and the French company EDF is also joining as a shareholder. It is seen as a competitor to the EU-sponsored project Nabucco seeking to bring non-Russian gas to Europe.

At present, Russia has only one LNG terminal – on the island of Sakhalin. Russia plans to built two more such terminals, also in the Far East, in Yamal and near Vladivostok. Russia has already one operational underwater gas pipeline in the Black Sea – the Blue Stream pipeline used to export Russian natural gas to Turkey.

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