Italy Taps Russia's Gas

By Land, Thomas | Contemporary Review, April 1994 | Go to article overview

Italy Taps Russia's Gas


Land, Thomas, Contemporary Review


AN Italian financial aid package worth more than one billion pounds backing equipment sales to Russia's highly profitable natural gas industry has at last launched an enormous, long-awaited programme to upgrade the obsolete pipeline system built by Soviet engineers. The leaky and dangerous gas transmission lines are crucial to Europe's energy security. Gas is also a main sector of the Russian economy and one of its major export earners.

The scheme, which holds out the promise of lucrative export opportunities for many Western enterprises, is essential to meeting the expanded annual production target of 690-695 billion cubic metres (bcm) of gas sought by Gasprom, the state energy concern.

Most other republics in the Commonwealth of Independent States, which have taken charge of the pipeline sections passing through their territories, are planning similar programmes.

The technical challenge is just beginning to be quantified. Technical assistance over some years and capital injections in the region of billions of dollars for these highly lucrative projects are expected from the West.

Russia's inability to meet the tough economic conditions laid down by the International Monetary Fund is blamed for the failure of the West to disburse only a fraction of the $28bn earmarked for technical assistance to that country. But no difficulties are expected in raising finance for pipeline modernisation.

Increasing the overall efficiency of the gas transmission system will reduce emissions of methane, sulphur dioxide and nitrogen oxides into the atmosphere, enhance public safety and provide energy and economic benefits both to Russia and to Europe as a whole.

Italy's 13-year credit, organized by the state financial institute Mediocredito Centrale in Rome, will be repaid by gas supplies from Russia. Much of the equipment and materials for the programme will be produced under licence in former Russian military plants.

The financing package gives a headstart to Italian companies in the race for contracts. But they will face tough competition from other Western countries. Canada, France, Norway and the United States are already involved in a comprehensive, 18-month technical analysis of the weak points in Russia's gas transmission system. The Netherlands and the United Kingdom have also expressed interest in taking part.

Further finance is expected from the World Bank which recently announced a $610m investment in support of a $1bn gas and oil industry project -- its biggest single industrial development loan -- in Western Siberia. The World Bank president, Lewis Preston, told the Moscow newspaper Izvestia that the loan was intended to encourage considerable private investment in the energy sector, first by Western interests and later by the Russians.

An authoritative analysis published by the United Nations Economic Commission for Europe (ECE) estimates that as much as $85bn of foreign capital may flow into the primary sector of the Commonwealth of Independent States within the foresceable future as a result of investment projects concluded between 1990 and 1993.

Shoddy workmanship by the construction crews originally laying the pipelines without regard to quality under savage pressures for speed and performance and the consistently poor maintenance services following in their path ever since have led to significant steady emissions of methane, a waste of a valuable national resource. And the defective pipeline system is subjected to exceptional change in natural and climatic conditions, including areas with permafrost, bogs and active corrosive soil. A great proportion of the pipelines stretches across sparsely populated areas with severe terrain conditions and poorly developed transport and communication systems.

The most critical parts of gas mains in terms of technical safety are those near settlements, roads, railway and underwater crossings as well as crossings with another pipeline. …

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