Ukraine pressure: Nord Stream line two speeds up

Ukraine pressure: Nord Stream line two speeds up


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The second line of the Nord Stream natural gas pipeline between Russia and Germany is going faster than planned, Nord Stream’s Deputy Communications Director Jens D. Müller told New Europe on 16 November.

“In general, the Nord Stream project is on schedule. Based on the huge experience from laying line 1, the construction of line two is going currently faster than planned,” he said.

The Nord Stream pipeline runs under the Baltic Sea from Vyborg near St. Petersburg to Greifswald in Germany. It was officially opened on 8 November in a ceremony attended by German Chancellor Angela Merkel and Russian President Dmitry Medvedev. The $10.4 billion line that runs 1,224 kilometres under the Baltic Sea could eventually supply Western European consumers with up to 27.5bn cubic metres of natural gas per year, and will be joined by a twin line with similar capacity. The completion of line 2 was originally scheduled for October 2012. The total design capacity of the pipeline is 55bn cubic metres per year.

The new link has been brought online in the wake of Germany’s decision to phase out all of the country’s nuclear power plants by 2022. The decision was made following the earthquake that caused the Fukushima nuclear disaster in Japan. Russian gas giant Gazprom holds 51% of Nord Stream, Germany’s E.ON Ruhrgas and Wintershall each hold 15.5%, while Nederlandse Gasunie and GDF Suez hold 9% each.

Nord Stream bypasses traditional transit states Ukraine, Belarus and Poland. Nearly 80% of Russian exports to Europe transit through Ukrainian territory. Disputes between Kiev and Moscow over the price of gas sold to Ukraine, and pipeline transit fees paid to Ukraine to ship Russian gas to Europe, have brought shipments to European countries to a near-total halt in 2006 and 2009.

The 2009 gas crisis led to a deal between Kiev and Moscow which the present Ukrainian leadership says burdened the country with an exorbitant price for Russian gas. Moscow-based Alfa Bank oil and gas analyst Maria Yegikyan told New Europe on 16 November that the fact that Nord Stream has been launched has significantly reduced Ukraine’s leverage power in negotiations with Gazprom.

Moreover, the fact that line two of the Nord Stream pipeline is going faster than planned “is even more pressure on Ukraine with Gazprom negotiations”, she added. Talks to renegotiate the 2009 gas deal between Russia and Ukraine are in progress. Kiev aims to significantly reduce the price from the current level of about $400 per 1,000 cubic metres to $220-$230.

The Ukrainian press speculates that the new contract will be signed by the end of the year. However, Gazprom has not confirmed any agreement yet.

Ukraine hopes that a lower Russian gas price will allow it to cut its budget deficit without raising gas and heating prices for households, something the International Monetary Fund (IMF) has insisted should happen.

Gazprom has said it would be willing to reduce the price of gas sold to Ukraine if Kiev agrees to sell a controlling stake in Ukraine’s state-owned gas transportation network but Ukrainian President Viktor Yanukovych has said it is not for sale.

Yegikyan said that there will probably be some trade off involved between Russia and Ukraine. “Essentially Gazprom has no other reasoning to lower the price for Ukraine unless the country provides some benefits or preferential treatment for acquisition of Ukraine’s gas transit system so I think that’s one of the quotas for the price reduction for Ukraine especially in line with the fact that Nord Stream has launched and Ukraine’s leverage power and negotiations with Gazprom are significantly down,” she said.

Meanwhile, Russia is working to construct the South Stream gas pipeline which also bypasses Ukraine and it is meant to transport Russian gas to Europe under the Black Sea beginning in 2015.

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