The Nord Stream consortium said Friday it has reduced the cost of steel pipes for the second phase of the pipeline from Russia to Germany by 38%, compared with the value of the tender for the first phase in 2007.
The difference in cost demonstrates how the global recession and sharp drop in some commodity prices has improved the economics of large energy infrastructure projects.
Nord Stream awarded the second-phase contract Friday for more than a million metric tons of steel pipe that will run 1,220 kilometers under the Baltic to manufacturers Europipe, OMK and Sumitomo Corp. (8053.TO).
The value of that contract was just EUR1 billion in total, compared with the first phase contract, for a pipeline of the same length and capacity, that cost EUR1.6 billion, said a Nord Stream spokeswoman.
The total budget for both phases of the pipeline remains at EUR7.4 billion, said the spokeswoman. "In a project of this magnitude, it will always be the case that some items can be procured for less than initially calculated, but there may also be instances where prices increase," she said.
Europipe, which is 50% owned by Salzgitter AG (SZG.XE), will supply 65% of the pipe, Russian pipe company OMK will provide 25% and Japan's Sumitomo 10%, the pipeline consortium said in a statement.
The second leg of the pipeline will run parallel to the first leg under the Baltic from Vyborg in Russia to Lubmin in Germany. The first leg was tendered in 2007 and is scheduled to begin operations in 2011.
Each of the two pipelines will transport up to 27.5 billion cubic meters a year of gas into Germany, enough to supply more than 26 million households when both are complete.
The project is a central plank of Russia's strategy to reduce political risk to its gas supplies by bypassing transit countries in Eastern Europe. Russian gas supplies to Europe have in the past been disrupted by disputes with transit countries Belarus and Ukraine.
Nord Stream is 51% owned by Russian gas monopoly OAO Gazprom (GAZP.RS) in partnership with BASF SE (BAS.XE) subsidiary Wintershall, German utility E.ON AG (EOAN.XE) and Dutch gas network operator Nederlandse Gasunie NV.