Gazprom breaks with Turkish Stream builder just before start of construction
Just when the pipelay vessel of Italy's Saipem has anchored near Anapa, from where it was expected to start laying the Turkish Stream gas pipeline, Gazprom has unexpectedly terminated the contract to lay the first line of the pipeline.
Then again, it was impossible to start construction, since negotiations on an intergovernmental agreement with Turkey have dragged on, and immediately after completing the first line of the Black Sea pipeline Saipem's fleet was due to go to another customer.
In these conditions, Gazprom placed all responsibility on the Italian contractor. South Stream Transport B.V., a wholly owned subsidiary of the Russian gas giant, on Wednesday notified Saipem S.p.A. about the termination of the contract for the construction of the first line of the offshore section of the pipeline, which was signed as part of the implementation of the South Stream pipeline project in 2014. "This decision is dictated by the impossibility of reaching agreement on many working and commercial issues in the implementation of the Turkish Stream project," South Stream said in a statement.
In addition to the contract for construction work, Gazprom is supposed to pay Saipem about $300 million for the six months that the latter's ships sat idle between the cancellation of the South Stream project and start of Turkish Stream. Market players have said that Gazprom might try to get the payment for the downtime reduced.
The project company concluded its press release by saying: "Other work on the project is continuing and South Stream Transport B.V. will soon begin negotiations with potential contractors for the laying of the first line of Turkish Stream."
The number of contractors in the world that lay offshore pipelines can be counted on ones fingers. The best known in Russia is Eni subsidiary Saipem, which built Nord Stream and Blue Stream. Switzerland's Allseas has also worked for Gazprom.
Russia has one company that has some expertise in construction of offshore pipelines - Mezhregiontruboprovodstroy (MRTS).
In April, Gazprom disclosed a little-noticed material fact about the provision of guarantees to Gazprombank for MRTS on a credit line of $1 billion.
While a new pipelay vessel now costs $1 billion, MRTS could buy two used platforms for this amount, sources familiar with the situation told Interfax. This would enable Gazprom to independently build both Turkish Stream and Nord Stream II, without worrying that a contract with a foreign contractor might be blocked by a new wave of sanctions.