SUMMARY: Gazprom’s Gas Pipeline Lineup

MOSCOW. Oct 9 (Interfax) – Gazprom (RTS: GAZP) is ever more aggressively pushing itself onto the European market. Upon launching Line 2 of the Nord Stream gas pipeline on Monday, the Russian gas giant announced that additional capacity should be built in this direction. The new project could tentatively be called Nord Stream-2, although its potential participants and markets are unclear, while Nord Stream-1 is using just a sixth of its capacity.

Gas pipeline gift wrapped

It took Gazprom ten years to select the foreign partners for the Nord Stream project and launch Line 1 with capacity of 27.5 billion cubic meters per year. Construction of Line 2 took only a year and was completed just in time for the 60th birthday of the author of the idea, President Vladimir Putin.

“I see symbolic meaning for the Russian president’s birthday. This is a type of present to the originator of the idea (Putin),” Miller said during a ceremony marking the launch of the gas pipeline’s second line.

The idea of building the offshore gas pipeline bypassing transit countries was brought up in a phone conversation with Putin during a time of difficulties with transiting gas through Ukraine, Miller said.

Head of the presidential administration Sergei Ivanov said that a lot of time had been put into securing permission to build the pipeline.

“The president indeed held a lot of talks with our European partners and agreed on business matters,” he said.

Nord Stream, which runs along the bottom of the Baltic Sea from Vyborg, Russia to Greifswald, Germany, passes through the exclusive economic zones of Russia, Finland, Sweden, Denmark and Germany, as well as through the territorial waters of Russia, Denmark and Germany.

However, the inauguration of the twin pipeline will not increase total gas supply via Nord Stream to Europe as it will carry some of the gas already transported through the first line, European gas market sources told Interfax.

The Nord Stream gas pipeline, which was commissioned 11 months ago, still transports gas from former Ukrainian transit contracts. The gas pipeline will start moving new gas in November, a source in the gas sector told Interfax.

The first two lines of Nord Stream, with combined capacity of 55 bcm per year, are currently utilizing only a sixth of capacity, according to Interfax sources.
Nord Stream. To be continueda(euro)

In May 2012, despite falling demand for gas in Europe and Ukraine’s latest demands to revise gas contracts, Nord Stream’s shareholders instructed to the company to look into the advisability of building additional lines.

Gazprom, the project operator, now owns 51%, German companies BASF SE/Wintershall Holding GmbH and E.ON Ruhrgas AG each have 15.5% and Dutch company Gasunie and France’s GDF SUEZ each have 9%.

On the day that Line 2 was launched, the shareholder committee of Nord Stream AG held a meeting in Portovaya Bay (Leningrad Region), the starting point of the gas pipeline across the Baltic Sea.

“Nord Stream shareholders examined the preliminary results of the feasibility studies for the construction of the third and fourth strings and came to the conclusion that their construction was economically and technically feasible,” Gazprom said in a press release. “By January 31 of
the next year, it is planned to sign a memorandum on creating new gas transmission facilities across the Baltic Sea to Europe. One of the strings might be intended for delivering Russian gas to the United Kingdom. And we see interest in this project on the part of our British partners,” said Alexei Miller.

Nord Stream’s shareholder committee has decided to further develop the project in the framework of a new company, to be created in the first quarter of 2013. They based their decision on their successful experience in implementing the Nord Stream gas pipeline’s two branches. Until that time, the company shareholders will decide on their participation in the project, Nord Stream said.

Miller said earlier that the participants in the construction of various Nord Stream lines might differ. “There can be a different composition of shareholders on different sections of this route. It is possible to suppose that the shareholders of the marine section of lines 1 and 2, as well as lines 3 and 4, can remain the same, it’s possible to suppose that it will change somehow. It’s possible to suppose that on the line that will go to continental Europe the current composition of Nord Stream AG shareholders will remain the same, but for the fourth line, which will have new target markets, including Britain, there could be a different composition of shareholders,” he said.

And the whole Baltic is not enough

Asked what would be the starting point for the third and fourth lines, a source with knowledge of the project’s implementation said, “The pipe will not run through Portovaya, it will run through the Kingesepp region.”

Two pipes have already been built through the Neva, and there is nowhere else to build anymore. “The possibility exists on one shore, but it doesn’t exist on the other,” the source said. A Nord Stream source said that the lines will come ashore in Germany “at practically the same place where the first and second lines come ashore.”

It was reported officially that Nord Stream had asked for permission to conduct surveys for laying the gas pipeline from the Estonian and Finnish authorities. Estonia has received a second chance to take part in the project – the first Nord Stream lines were laid outside of Estonian waters due to the position of the Estonian authorities.

South plus north streams

Miller said at the end of June that a decision on the construction of a third and fourth Nord Stream line would be made by the end of 2012. A final investment decision is also supposed to be made by the end of the year on the construction of another new export route to Europe – South Stream. Prime Minister Dmitry Medvedev, while he was still president, ordered that the marine section of the pipeline, which is to be laid under the Black Sea, be built to the maximum capacity of 63 bcm per year.

Meanwhile, in the first eight months of 2012, transshipments of gas through Ukraine fell by 22% to 56.2 bcm, and Russian gas exports dropped by 9.3% to 92.5 bcm in the period.

Europe is intent on diversifying its sources and supply routes for gas, so it is resisting an expansion of gas supplies from Gazprom and lobbying for direct gas supplies from the Caspian region. Last year, when Gazprom presented the South Stream project to the European Commission, EC Energy Commissioner Guenther Oettinger said: “I would like to see Novatek in Europe, and EU gas companies in Russia. And pluralism between us. Now is the time to join these two internal markets, without barriers at the border among which I would also count export monopolies.”

Putin has already not ruled out the possibility that Gazprom’s export monopoly be lifted at some point in the future.

The European Union has also put up defenses against Gazprom with the Third Energy Package, according to the logic of which Gazprom needs to build twice as much capacity in order to supply the necessary amount of gas. Gazprom, as the investor in the construction of pipelines to meet the needs of European consumers, does not understand this approach by the EU.

International and European analysts expect that in the long-term the EU will need about 200 bcm of new imported gas due to falling European production. Therefore, Gazprom is consoled by the fact that even with the launch of new gas pipelines its share of EU gas imports will remain stable.