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Launch of Nord Stream spells economic, political benefits for Russia

November 09, 2011, 16:08 UTC+3 Alexandrova Lyudmila

MOSCOW, November 9 (Itar-Tass) —— The launch of the gas pipeline Nord Stream, which took place in the German city of Lubmin on Tuesday to herald the start of straight Russian gas traffic to Europe bypassing Ukraine and Belarus, will spell both economic benefits and big political dividends for Russia, analysts say. Although many will feel offended, especially Ukraine, for which the launch of the gas pipeline means a loss of 700 million dollars of annual revenues from transit. Europe also continues to express concern about its growing energy dependence on Moscow.
The 1,224-kilometer-long gas carrier, which began to be laid in April 2010, consists of two parallel pipes with a throughput of 27.5 billion cubic meters each. On Tuesday, one of the two lines went operational. The construction of the other is to be completed by the end of 2012. Today it is ready more than 70%. When commissioned, Nord Stream will be able to deliver to the EU 55 billion cubic meters of Russian gas per year. In other words, this will allow Gazprom to control a third of the European gas market.
Nord Stream's shareholders are Gazprom (51%), Germany's Wintershall Holding and E. ON Ruhrgas (15.5% each), France's GDF Suez and the Netherlands’ Gasunie (9%). According to the Russian side, Nord Stream cost 8.8 billion euros to lay. As Gazprom spokesman Sergei Kupriyanov said, Nord Stream will not pay off soon. The intention is it will stay in operation for 30-50 years.
The target markets for Nord Stream are Germany, Great Britain, the Netherlands, France, Denmark and some other countries.
One of the reasons that prompted Moscow to come up with North Stream and South Stream projects was the dependence of the transit of Russian gas to Europe on Kiev and Minsk, and the reluctance of the transit countries to share with Gazprom control of the gas transit system. Whereas the question of gaining control over Beltransgaz is to be resolved with Minsk before the end of the year, Kiev is still stubborn.
Gazpromexport CEO Alexander Medvedev has made some soothing statements addressed to Belarus. He said there was no risk of a reduction of Russian gas transit through its territory via the Yamal-Europe gas pipeline even when the new pipeline achieves capacity operation.
At the same time the launch of the pipeline is an extremely unpleasant news for Ukraine, which risks losing part of the revenues from the transit of Russian gas. Alexander Medvedev said yesterday that cuts would affect transit precisely through Ukraine.
Last year, the Ukrainian gas pipeline system transited to Europe 95.4 billion cubic meters of Russian gas, that is, two-thirds of the amount Gazprom exports to destinations outside the CIS. On this transit Naftogaz Ukrainy earned 1.3 billion dollars of net profit.
The international rating agency Fitch has already decided that the launch of a new pipeline could adversely affect the development of Naftogaz Ukrainy. According to Fitch experts, the gas traffic and the revenues will fall by about 20%.
The launch of the pipeline actually means the weakening of Ukraine’s stance at the negotiations on the most controversial issue in bilateral relations with Russia: gas prices. According to Kiev, Russia abuses its position of a monopoly supplier, demanding for its gas "an excessive and unfair" price.
There is a way out, though, experts say. Moscow is still interested in the Ukrainian pipeline system. And the launch of Nord Stream will surely become one of the means of putting pressure on Kiev to achieve Gazprom’s long-sought goal. This has been confirmed by a high-ranking source in the Russian delegation to the daily Kommersant. According to the official, Moscow and Kiev "continue to conduct highly secret negotiations on a formula of sharing the Ukrainian gas pipeline system."
For Europe, the exclusion of Ukraine as a transit country from the scheme of gas supplies is positive news, pointing to a reduction of transit risks, the newspaper quotes Vitaly Kryukov, of the IFD Kapital, as saying. However, no rapid warming of the gas relationship between Europe and Russia followed the launch of the gas pipeline. The European commissioner for energy, Guenther Oettinger, whom the Russian side sees almost as a chief opponent of Gazprom in Europe, alongside very complimentary statements about Nord Stream also said the cultural contradictions of the EU and Russia still remain, which means that Europe will still be looking for ways of reducing dependence on Russian gas supplies, primarily those in Asia.
For this reason, while supporting Nord Stream, the EU keeps a negative attitude to South Stream, which is still embryonic. The new southern route will take away additional gas from the Ukrainian gas transportation system, but it will not reduce transit risks for Europe. Meanwhile, the EU has its own plans for southern pipelines bypassing Russia, the main of which - Nabucco - is a direct competitor of the South Stream.
In Russia there is now an excess pipeline capacity that can be manipulated with, says Vedomosti. Many will feel offended and angry: the Baltic countries, Poland and Ukraine, which will lose the transit gas flows, and which will now have to change much in their energy and fiscal policies. Europe, too, is full of fears. Newspapers have been writing about growing energy dependence on Russia, which already provides nearly a quarter of gas the EU consumes. There has been much speculation about the dangers of gas-based friendship between Russia and Germany.
"Russia’s political gains from the launch of Nord Stream will be huge,” says the periodical. “The most obvious advantage is that the reliability of Russian gas supplies to Europe will objectively increase. Which is important in the highly competitive European market and Gazprom’s reputation, spoiled by gas wars Ukraine.
The other advantage is Nord Stream significantly expands the capabilities of Russia for political and economic bargaining with Belarus and Ukraine, the newspaper says. The excess pipeline capacity will completely outperform Belarusian transit. For instance, it may be used as a punishment for Belarus’s bad behavior and an encouragement for Ukraine’s good conduct, or to minimize transit through Ukraine, the general director of East European Gas Analysis, Mikhail Korchemkin explains.