Nord Stream strengthens EU-Russia bond

Nord Stream strengthens EU-Russia bond


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On 8 November, German Chancellor Angela Merkel and Russian President Dmitry Medvedev inaugurated the 1,224-kilometre Nord Stream pipeline that will supply the European Union with Russian gas bypassing existing transit countries.

The pipeline took 19 months to build under the Baltic Sea at a cost of €7.4 billion. It is designed to operate for 50 years. The ceremony to open the symbolic white tap of the gas pipeline in the town of Lubmin in northern Germany, where the pipe comes ashore, was also attended by Dutch Prime Minister Mark Rutte and French Prime Minister Francois Fillon.

Energy Commissioner Günther Oettinger noted that when a plan to lay a second pipeline parallel to the existing one is completed, the twin pipelines will supply the EU with 10% of its annual gas needs. Russia currently provides almost 30% of the gas consumed in Europe.

Merkel said that the pipeline created a long-term bond between the EU and Russia: “We will be tied closely to one another for decades,” she said in Lubmin. “The construction work has proceeded astonishingly quickly,” added Merkel, in praise of the engineers who built the challenging project.

Medvedev said that both sides could work together on “many excellent projects” in the future.

“This is a long-awaited event which signifies the strengthening of relations between Russia and the European Union. This event will enhance the security regime, including energy security in Europe,” Medvedev told a news conference. Russian natural gas and the electricity produced with it will “make the life of a large number of people more comfortable”, he said, adding that he hoped the European economy and gas demand would grow.

“We expect that the economy of the European Union will be able to overcome all current difficulties and attain steady growth, after which annual additional requirements of our European partners for gas may increase to quite high levels by 2020 – to 200bn cubic metres, according to expert estimates,” he concluded.

Fillon called for working “to improve energy security and the diversification of our supply routes in a more co-ordinated and more transparent way”. Merkel also highlighted the need for diversification. “When we talk of security of supply, we must think of diversification.”

Oettinger assured the EU’s Russian partners that Brussels sees “opportunities for them in transparent competition”. Medvedev was sceptical, however, saying that he hoped “artificial barriers won’t be put up”. Russia has criticised an EU probe into claims that Gazprom had abused its position as the EU’s dominant gas supplier. There has also been tension over Brussels’ plans for supply routes from other gas sources bypassing Russia.

Moreover, Gazprom is under pressure from several of its biggest European clients to lower gas prices under its long-term contracts. European gas prices for year-ahead delivery have risen nearly 40% since the beginning of 2010 as oil prices have remained high.

Julian Lee, senior energy analyst at the Centre for Global Energy Studies (CGES) in London told New Europe on 8 November that Nord Stream is generally a very positive development for long-term gas supply security. But he stressed that the differences between EU and Russia would remain. “I don’t expect that it will automatically mean that there are no more disagreements between Russia and Europe. I’m sure they will continue over the same of sort of issues that we’ve seen in the past: over pricing and over concerns over monopoly positions and competition,” Lee said.

Even though the EU accepts that it will be to a large part dependent on Russia, it doesn’t want to be overly reliant on its neighbour. Therefore, Brussels wants to bring gas into Europe from new producers along new routes – a move that has aggravated Moscow. “It’s generally accepted within Europe that Russia is and will remain probably the most significant supplier of imported gas into Europe so diversification is not anti-Russian but it does recognise that Europe doesn’t want to become overly dependent on Russia,” Lee said.

However, most of these alternative gas projects focus on Europe’s Southern Gas Corridor and it’s in that direction that issues of diversifications really have an impact rather than in the northern direction.

Asked if the EU prefers Nord Stream over another Russian-led project -South Stream – Lee said that Europe does and always has supported Nord Stream. “The issues with South Stream in my mind are very much issues over timing rather than over its very existence. The only reason that Europe is so uncomfortable at the moment with South Stream is that the EU doesn’t want to see South Stream derailing Nabucco. If Nabucco is built then I think the attitude to South Stream subsequently becomes very different. If Nabucco is ever secure we will see a much greater degree of support within Europe for South Stream. Once it’s no longer seen as a threat to diversification,” the CGES energy analyst told New Europe.

Nord Stream also highlights Russia’s plan to diversify routes. Nord Stream bypasses an old pipeline network through Belarus and Ukraine. It taps into an estimated one trillion cubic metres of gas in the Yuzhno-Russkoye gas field in Siberia.

Nord Stream project includes two roughly parallel pipelines with an overall annual capacity of 55bn cubic meters. Russia began filling the first pipe with gas in September. Around 800 kilometres of the second pipe have already been laid. Natural gas transportation via the first stage of the Nord Stream pipeline will reach its full capacity of 27.5bn cubic metres as soon as 2012, Gazprom Deputy CEO Alexander Medvedev said.

“In 2012, the first stage of Nord Stream will transport up to 27.5bn cubic metres. Specific volumes will depend on customers’ requests but the contractual volume for 2012 is 27.5bn cubic metres,” Medvedev added.

Gazprom, which holds 51% in Nord Stream, has already signed long-term gas contracts via the Nord Stream pipeline with several European countries, including Germany, Denmark, the Netherlands, Belgium, France and Britain.

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