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Energy quarterly: Pipelines and security of supply

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Why Russia's Nord Stream is winning the pipeline race

By Simon Taylor  -  29.01.2009 / 00:00 CET
The Russia-Ukraine gas crisis has bolstered political support for Nord Stream.

There is one clear winner from the gas dispute between Russia and Ukraine: the proposed Nord Stream pipeline, which will bring Russian gas to Europe via the Baltic sea.

The clash between Russia and Ukraine, which left the likes of Bulgaria and Slovakia without gas supplies for nearly three weeks, has boosted the EU's drive to diversify its energy supply routes.

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The Nord Stream project must be an important part of diversification of energy sources
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The EU has made a priority of building the Nabucco pipeline, which is supposed to bring gas from the Caspian region through Turkey into Austria, but at the earliest this conduit will be ready only in 2013.

Nord Stream, on the other hand, is expected to be operational in 2011.

The obstacles to completing Nord Stream have largely been political and, to a lesser extent, environmental. When it was announced that the pipeline would run under the Baltic, Radek Sikorski, then Poland's defence minister, now the foreign minister, likened the decision to the Molotov-Ribbentrop pact, the 1939 deal between Nazi Germany and the Soviet Union, which divided Poland between the two dictatorships. Sikorski's over-the-top reaction reflected Poland's fears that its energy security would be weakened if Russia could bypass pipeline that go through Poland.

Gerhard Schröder

Political hostility to the project was not helped by the announcement in 2005 that Gerhard Schröder, the former chancellor of Germany, was joining Nord Stream's board. Schröder has earned a reputation as a public apologist for the darker sides of Vladimir Putin's Russia, having once described the former president as “a thorough democrat”.

The countries bordering the Baltic are carrying out assessments of the environmental impact of the pipeline, but it seems unlikely that they will raise sufficiently serious concerns to prevent the project going ahead.

Despite the political reservations and the environmental concerns, the economic and commercial arguments for Nord Stream are powerful.

The pipeline will bring 55 million cubic metres of gas each year from Russian gas-fields into Germany to meet rising demand from western Europe where domestic gas-fields are running out.

Commercial backing

The Nord Stream consortium has secured the €7.4 billion funding it needs for construction, despite the reluctance of banks to lend in the current economic downturn. Almost a third of the funding is coming from the shareholders of the Nord Stream consortium: Gazprom (Russia), Wintershall and E.ON Ruhrgas (Germany) and Gasunie (the Netherlands). Half of the remaining 70% will come from commercial bank lending and the rest from export credit agencies.

Nord Stream has also signed contracts for the sale of the gas with five companies, including Dong Energy (Denmark), E.ON Ruhrgas, Suez-Gaz de France, Gazprom UK and Wingas (Germany).

Recent reports that France's Suez-GdF is interested in taking a stake in the consortium reinforce the impression that commercial backing for Nord Stream is strengthening.

Political support for Nord Stream is probably stronger than ever thanks to the New Year gas crisis. As the dispute worsened in the second week of January, Günter Gloser, Germany's state secretary for European affairs, commented: “Of course the Nord Stream project must be an important part of diversification of energy sources”.

Criticism

Critics argue that Nord Stream diversify supply routes but does nothing to weaken the dependence on Russian gas or dilute the accompanying economic power of Gazprom. But it has the advantages, compared with other pipeline projects such as Nabucco, of secure gas supplies and secure funding.

Even without the recent gas crisis, Nord Stream was on course to become operational in 2011, which means it will start to bring gas to western Europe years before Nabucco.

© 2014 European Voice. All rights reserved.
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