South Stream Pipeline
Employees stand near a pipe made for the South Stream pipeline at the OMK metal works in Vyksa in the Nizhny Novgorod region.Reuters

European companies that were contracted to build South Stream are facing billions of euros in losses after Russia abandoned the 63 billion cubic metre gas pipeline project.

The total amount of losses to foreign companies is estimated at €2.82bn ($3.48bn, £2.22bn), according to an official Russian newspaper.

European companies will face direct losses of at least €2.5bn, according to a South Stream Transport press release. Saipem, a subsidiary of Italian energy firm ENI that has been contracted to lay the pipeline, will suffer the biggest loss at €2bn.

In addition, the German Europipe, which has a contract to supply 50% of pipes for the first line, would lose €500m. Austria's OMV group, which invested heavily in the project, would also suffer serious losses.

Russia, which has been in a political spat with the EU over the crisis in Ukraine, earlier cancelled a key pipeline project to deliver gas to southern Europe.

The proposed $50bn (£32bn, €40bn) South Stream project through the Black Sea going across Bulgaria, Serbia, Hungary, Slovenia, Italy, Bosnia and Herzegovina, Croatia and Austria had the potential to meet more than 10% of EU gas demand.

Russia will construct an alternative pipeline, redirecting gas to Turkey and Greece.

Bulgaria, Serbia and Hungary, which were hard hit by the decision, said they will now be forced to look for alternative gas sources. Bulgaria is set to lose €3bn in investment and 2,500 potential jobs due to the cancellation.

Russia has taken the decision for "economic reasons", according to Andrii Tiurin of Ukrainian nuclear company Energoatom. The country has been suffering from plunging energy prices and falling European demand for gas.