Southern Gas Route Faces Delay

Gazprom plans to delay gas deliveries to Europe through its South Stream pipeline as it cuts investment, and the project may cost considerably more than previously announced.

The start date for shipments through South Stream, originally set for 2013, will be pushed back to the end of 2014 or 2015, according to a presentation to investors Friday in Moscow. Gazprom spokesman Sergei Kupriyanov couldn't be reached for comment.

The cost of the project may top 24 billion euros ($31 billion), Gazprom told investors. Energy Minister Sergei Shmatko said in July that the project might cost $20 billion.

Gazprom may cut investments by 14 percent this year, according to the presentation. The gas producer said it would invest $29 billion this year, down from $33.6 billion in 2008.

"Our takeaways were generally positive, including surprisingly large declines in expected capex outlays," Alfa Bank wrote in a note after the presentation. "Gazprom is adapting to the new economic reality."

Gazprom's budget is based on a Urals crude price of $50 per barrel. Other scenarios assume prices of $40, $30 and $25, the company said.

Exports to Europe may fall 5 percent this year to 170 billion cubic meters from 179 bcm in 2008, it said, and the average price per 1,000 cubic meters will drop to $280 from a record of $409 last year.