South Stream versus Nabucco - Recent Developments in a Zero Sum Game

Introduction

Recent reports suggest Russian gas monopoly Gazprom is engaged in talks with RWE to bring the German utility into the South Stream gas pipeline consortium. This comes hot on the heels of a series of inter-governmental agreements between Russia and potential transit states to build support for South Stream. What are the chances of RWE signing up to South Stream and what would this mean for Nabucco?

Scope

* A detailed analysis of Nabucco and South Stream: why they are competing, what are their strengths & weaknesses and which is winning
* An overview of the current European gas market and how new trends in regulation and technology are shaping the pipeline race
* A discussion of how Nabucco consortium member RWE will likely react to overtures from Russian energy Giant Gazprom to join rival South Stream project

Highlights

The effects of the recession and of diluted environmental commitments have reduced projected European gas demand. At the same time, advances in unconventional gas extraction and investment in new assets have increased gas supply: competition is now zero sum.

Reasons to Purchase

* Understand the nuances and key drivers in the competition between Nabucco and South Stream to supply gas to Europe
* Analyse the strengths and weaknesses of each project and draw your own conclusions on how events are likely to pan out
* Develop your own investment strategy in preparation for the new European energy security landscape as it emerges

Report Highlights
The effects of the recession and of diluted environmental commitments have reduced projected European gas demand. At the same time, advances in unconventional gas extraction and investment in new assets have increased gas supply: competition is now zero sum.
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Overview 1

Catalyst 1

Summary 1

Methodology 1

Executive Summary 2

Nabucco and South Stream are engaged in a 'winner-takes-all' contest to supply Europe with gas 3

Nabucco and South Stream are engaged in a 'winner-takes-all' contest to supply Europe with gas 3

Perceiving Nabucco as a threat to its dominant market position, Russian energy giant Gazprom initiated South Stream, a rival pipeline project, in 2007 4

At the time, some argued that both new pipelines might be viable on account of Europe's booming demand for gas and its limited reserves 5

However, the effects of the recession and of diluted environmental commitments have reduced projected European gas demand 6

The recession 6

Weaker environmental commitments 6

At the same time, advances in unconventional gas extraction and investment in new assets have increased gas supply: competition is now zero sum 6

Unconventional gas extraction innovation and growth in the LNG market 6

The development of Nord Stream 7

Recent developments suggest South Stream may have stolen a march on Nabucco 7

The 2009 Russia-Ukraine gas crisis did significant damage to Gazprom's reputation as a reliable energy partner, boosting Nabucco's prospects 7
Recognizing this, Gazprom has stepped up efforts to recruit governments and utilities to the South Stream project, most recently targeting RWE 8

Meanwhile, the obstacles which hampered Nabucco from its inception continue to plague the project, sapping momentum and political will 9

RWE is unlikely to pull out of Nabucco, but if a final investment decision is not made before the end of 2010, the pipeline's chances of success will narrow 10

APPENDIX 12

Glossary 12

Further reading 12

Ask the analyst 12

Datamonitor consulting 13

Disclaimer 13

List of Figures

Figure 1: The planned routes for South Stream and Nabucco 4

Figure 2: Domestic European gas production (bcm), 1970-2005 5

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