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Gazprom Courts Southern Europe to Exclude Ukraine

Source: Reuters 3/7/2016, Location: Asia

Russia's Gazprom is counting on its deep natural gas ties with Italy to revive plans aimed at bypassing Ukraine as a transit state for politically sensitive gas shipments to Europe.

But whether the tactic works is another matter.

Having tried and so far failed to bolster pipeline links with the continent through Bulgaria and Turkey, Gazprom is running out of options to secure its strategic entry point into southern Europe, and with it any chance of cutting Ukraine out of the picture this decade, industry and government sources say.

Undeterred, last week it announced new plans with Italian utility Edison and Greece's DEPA to supply natural gas along the seabed of the Black Sea into Greece and Italy, from where it could be sold in Europe.

The so-called Interconnector Turkey Greece Italy (ITGI) Poseidon pipeline scheme - stuck in limbo for years - was first conceived back in 2003 as a way of lessening reliance on Russia by bringing in central Asian gas.

At one time it even had the backing of the European Union which aims to dilute Russia's one third share of Europe's gas market.

But ITGI was shelved in 2012 after it lost out to rival project TAP on a major deal to transport Azerbaijani gas to Europe.

"My immediate reaction is that in light of political difficulties this project is unlikely to move forward at this time," Emily Stromquist, analyst at risk consultancy Eurasia Group said.

Two Italian government sources dismissed the Gazprom-ITGI announcement as a Russian manoeuvre designed to force its assent, saying officials were not consulted beforehand.

"The government was furious at the companies for the way this was handled, at being put in a situation which made it seem as if the government was behind the plans," one source said.

Edison declined to comment for this story.

How the 8 billion cubic metre a year capacity project plays out on the ground is still unclear.

Stakes are high for Gazprom which needs a southern European link to fully avoid Ukrainian territory by the time pipeline transit agreements with the country expire on Dec. 31, 2019.

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