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  Project Nord Stream:  what’s next? (1)

Aivaras Bagdonas, VU TSPMI doktorantas
2011 09 12

The meeting of Russian President Dmitry Medvedev and German Chancellor Angela Merkel in Hannover on 19 July was an important event for further development of the Nord Stream pipeline project and first of all concerning Russia’s proposal to consider the construction of the third line on the Nord Stream pipeline. However, Angela Merkel said that Germany would not need “a third, fourth or fifth branches of Gazprom’s pipeline”, and it became clear that she didn’t support Moscow’s ambitions to expand the Nord Stream.  Moreover, according to Merkel, Gazprom should reduce gas price in order to attract European consumers.

But this political slap cannot prevent from realization of the Nord Stream Project. Russia is interested in completing the project as soon as possible to start gas supplies to Europe by the end of 2012 bypassing the “disobedient” transit states Ukraine and Belarus. According to expert estimations, next year annual gas consumption might increase by 10-15 percent, and during the next 10-15 years a two-fold jump is expected.

Germany is also concerned about the timely launch of the Nord Stream Pipeline. Today Gazprom gas accounts for 40 percent of German consumption; after reducing the use of nuclear power the demand for gas should increase.  In view of this, Germany and Russia might want to complete construction of the Nord Stream in due time irrespective of possible political or energy disagreements. Will Russia try to convince Germany to construct a third (fourth, fifth…) string in the Nord Stream pipeline? In order to answer this question it is necessary to evaluate the strategic relevance of this idea for Moscow.

According the Russian daily Kommersant, if the decision is made construct one more line in the Nord Stream, Russia may suspend or freeze the South Stream Project. It is quite possible, since Russia cannot come to an agreement with Turkey on South Stream construction issues.

In general, expansion of the Nord Stream would allow Russia to better control natural gas supplies toward the West. Via the concern Gazprom which currently holds 51 percent of Nord Stream shares, Russia secures the right to control this pipeline (differently from the currently used gas pipelines Soyuz, Yamal–Europe, Transgazetc. which are also controlled by Ukrainian, Belorussian, Polish and Czech companies). Construction of a new Nord Stream pipeline would allow Russia to reduce or terminate gas supplies by other pipelines.

Such a perspective is an important Russia’s energy leverage. For instance, the Ukrainian ruling elite doesn’t hide its intentions to modernize national gas transmission system. Belarus refuses to sell the shares of Beltransgaz, the operator of the gas pipeline Yamal-Europe crossing Russia’s territory. By properly using the Nord Stream card, Russia might cut foreign investment allocated for modernization of the gas supply infrastructure in Central and Eastern Europe, and reduce its value by eventually taking the control into own hands.

Finally, it is necessary to mention a probable European energy diversification which is acceptable for Russia. By separating Russian gas supply roads to Eastern and Central Europe Moscow could easily manipulate with gas supply to Eastern European countries. Since these countries depend heavily on Russian gas such energy leverage could become an effective political tool.

German arguments not to support Russia’s proposal to construct one more Nord Stream pipeline are very weak. This country is confined by the provisions of the Third EU Energy Package and other measures for liberalization of the EU energy markets.

One of the main Merkel’s arguments against the construction of new Nord Stream pipelines is that “new Nord Stream strings are not needed to meet the demand for natural gas in Germany which is going to shut nuclear power plants”. According to political reviewers, such a chancellor’s position is not justified for Germany hardly knows the future gas demands, and this weakens its position in the dialogue with Russia on the expansion of the Nord Stream.

In fact, Germany has no clear alternative to Russian gas.  Only 10 percent of the country’s electricity comes from renewable resources. According to the German long-term energy diversification plan, by the year 2020 the renewable energy sources should account for only 18 percent. After shutting nuclear power plans the country which is currently exporting energy will not be able to do without energy import.

According to Gunther Oettinger, EC Commissioner for Energy, soon Germany and a number of EU Member States will need more Russian gas. He said that “after Berlin’s decision to shut all nuclear reactors, gas will be a driver of the EU growth”.

From a philosophical point of view, in 2012 Germany and other EU Members States might want Russia to supply Europe with gas via currently used gas pipelines as soon as Nord Stream reaches its full potential. According to experts, gas pipelines crossing Central and Eastern European countries have enough capacity to ensure gas supply to the EU until the year 2030. But nobody can predict Russia’s position concerning further use of these pipelines after the launch of the Nord Stream.

The pressure of German ”business sharks” concerning expansion of the Nord Stream Project is also possible. Two major Nord Stream shareholders – “E.ON Ruhrgas“ and „BASF/Wintershall“ are interested in the economic benefit of the project. Thus, if Russia proceeds to press Germany concerning construction of a new Nord Stream string, German politicians would have to be in good relationship with Russia and get more benefits from the project.

Both, Germany and Russia are interested in completing construction of the two pipelines in due time. But the issue of constructing a third (fourth, fifth…) branch in the Nord Stream pipeline (regardless categorical Angela Merkel’s words in Hanover) cannot be considered as fully settled. Most probably Moscow will slightly push Germany not to stop with the construction of the second branch.

Situation might change if the South Stream pipeline is built, if Ukraine stops resisting Russia’s attempts to build monopoly of gas supply infrastructure toward the West, and if Russia manages to get the control of Beltransgaz and control of other Eastern European companies managing infrastructure objects of the currently used gas pipelines etc. Since there is little possibility of such changes (though Russia would probably get the control of Beltransgaz this year), soon the expansion of the Nord Stream pipeline might become one of the major strategic interests of Russia.

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