Russia mulling options for European gas strategy, Nord Stream pipeline

File Photo of Blue Flame from Natural Gas

(Interfax – April 9, 2013) Russia’s strategy on the European gas market could be built on reinforcing its position in non-EU European countries and introducing independent gas companies to Russian projects in Europe, Russian privately owned Interfax news agency reported on 9 April, quoting a source in Russia’s Energy Ministry. Separately, Gazprom CEO Aleksey Miller has said that expanding the Nord Stream gas pipeline will depend on the feasibility of the Yamal-Europe 2 project, a proposed gas pipeline from the Belarusian border to supply Russian gas to the countries of Central Europe, Interfax reported.

European gas strategy

The ministry has prepared for the government an analysis of the current intergovernmental agreements on Russian gas to Europe, the ministry source said.

The source said that the Third Energy Package, adopted by the European Union, introduces limitations on the ownership, management and transport of gas by vertically integrated companies. The document not only applies to the Nord Stream gas pipeline, which has already been built, but also threatens to remove the OPAL and NEL gas pipeline branches from Gazprom’s control.

“The same risks obviously could exist regarding South Stream,” the source said.

“The high degree of politicization and an unwillingness of Brussels to compromise on this question indicates that it is sensible to look for new, non-standard methods of promoting Russian interests in the European legal field. One of them could be to include Russian companies that are unaffiliated with Gazprom in our gas projects in Europe, which would deprive our opponents of one of their key trump cards – the thesis that one needs to fight against market monopolization,” the source said.

“Cooperation with states that are not currently members of the EU but are aspiring to join the EU and have declared they have joined the Energy Community deserves separate attention. That includes Albania, Bosnia and Herzegovina, Macedonia, Serbia, Montenegro, Moldova and Ukraine. One can assume with a high degree of probability that Russian investors will encounter problems similar to those in EU countries. In particular, projects in Serbia (the joint venture Jadran Naftagas and South Stream), Macedonia (South Stream), Moldova (Moldovagaz) and Ukraine are under threat of loss of control or assets. One must ensure that the states mentioned above on a political level comply with the existing agreements that regulate the activities of Russian companies. In parallel, it is worth stepping up work to strengthen guarantees at an intergovernmental level, for example, in the form of agreements on mutual protection and investment incentives,” the source said.

In the opinion of several ministries, it would not be sensible for Russia to insist that the current intergovernmental gas agreements signed with EU countries be revised. At the same time, officials want to continue the practice of signing intergovernmental gas supply agreements with European countries that are not in the EU, the source said.

Nord Stream plans

As for the Nord Stream gas pipeline, Gazprom is not planning to sign any binding documents regarding the third and fourth lines of pipeline over the next six months, Miller was quoted as saying at meeting of Nord Stream shareholders on 9 April.

The construction of the first two lines of Nord Stream cost 8.8bn euros. However, Gazprom’s managers see Nord Stream gas reaching new promising markets in the UK in the second stage, Nord Stream 2, when the fourth offshore line is built.

The Yamal-Europe 2 project envisages supplying 15bn cu.m. of gas to countries in Central Europe – the south of Poland, Slovakia and Hungary – which are countries tied to gas supplies through Ukraine.