Posted on April 9, 2010 - by Venik

Russia and Germany start work on £8bn pipeline under the Baltic

• Nord Stream will give Russia a third of EU gas market
• Other EU countries fear it may become political weapon

Russian and German leaders today launched construction of a pipeline that will carry 55bn cubic metres of gas to Europe under the Baltic Sea.

The Nord Stream project is aimed at building market share on the continent while bypassing Ukraine, where strained relations have caused supply disruptions in the past.

But while the €8.8bn (£7.7bn) scheme has been blessed by Angela Merkel, the German chancellor, other leaders inside the European Union are worried Moscow might use Europe’s increasing reliance on gas as a political weapon.

The European commission is already looking at plans to build an alternative Nabucco pipeline that will enable more gas imports from rival locations in the Caspian such as Azerbaijan.

Nord Stream, which involves Gazprom, E.ON, the German chemicals group BASF and Dutch firm Gasunie, is expected to help Russia increase its share of EU gas markets from 25% to about a third.

“The demand for the ‘blue fuel’ – we are all sure of this – will continue to grow in Europe,” said Russia’s president, Dmitry Medvedev, at the launch in Vyborg, which was attended by the former German chancellor Gerhard Schröder. Merkel joined by video link.

The pipeline will transport up to 55bn cubic metres of gas a year from 2012 from Vyborg in Russia to the German port of Greifswald. Gazprom said contracts had already been signed for most of the volumes.

One possible snag is the increasing popularity of alternative fuels, such as shale or liquefied gas. But Nord Stream officials have said this should not undermine Russia’s role in the European market.

Nord Stream, Russia’s biggest post-soviet gas pipeline, will ship gas under the Baltic Sea to Germany and onward to other European nations.

That will allow more Russian gas exports to bypass Ukraine, through which 80% is currently routed. Differences with Kiev encouraged Moscow to speed up the project, as well as South Stream, running north and south of the EU bloc.

In January 2009, Russian gas supplies to Europe came to a halt for almost two weeks as Moscow and Kiev rowed over prices and transit terms.

Gazprom boss Alexei Miller said Nord Stream would “ensure the highest reliability of supply”.

The Russian company saw a big slump in demand in Europe last year due to the economic crisis and as clients preferred to buy cheaper liquefied and spot pipeline gas. As a result it had to delay the start of its giant Arctic Shtokman gas field – one of the resource bases for Nord Stream – by three years, to 2016.

However the company is upbeat about prospects this year. “The pace of the market recovery is very, very great,” Miller said, adding that “based on the results of the first quarter” Gazprom would likely produce 529bn cubic metres of gas (bcm) up from a previous plan of 521 bcm.

The first leg of the project will carry 27.5bcm starting from 2011; while the second link is expected to be completed in 2012. The link will cross the waters of Russia, Sweden, Denmark and Germany as well as Finland.

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