Gazprom Deal

Oil Be Back

The first spare pipes for the Nord-Stream Baltic Sea pipeline are stored on shore in Lubmin Germany 19 June 2012 Source DPA 45861032
Tying up in the Baltic Sea: doubling the pipeline capacity to transport gas from Russia to Germany.
  • Why it matters

    Why it matters

    The Nord Stream pipeline deal shows that Europe is still willing to do business with Russia.

  • Facts

    Facts

    • Gazprom is doubling the size of its Baltic Sea pipeline with help from partners E.ON, Shell and OMV.
    • There are now plans to build two more Baltic gas lines in addition to the two existing lines.
    • The four lines would increase Russian gas exports to Europe by an additional 55 billion cubic meters.
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    Audio

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Russian oil giant Gazprom’s new foray into the battle for Europe’s gas market was conducted in strict secrecy and a great hurry.

With no prior fanfare, on Thursday Gazprom head Alexey Miller signed an agreement with representatives from the energy companies E.ON, Shell and OMV to double the size of the Baltic Sea pipeline known as Nord Stream.

There are now plans to build two more gas lines in addition to the two existing lines. The four routes would increase Russian gas exports by an additional 55 billion cubic meters.

In signing the deal, Gazprom is sending out a clear sign that it has no intention of renouncing Europe. Last year, it appeared that it may be doing just that after it pulled out of the South Stream pipeline that was meant to pass through the Black Sea to southeastern Europe.

Gazprom’s decision to drop South Stream hit relations with its long-term partner, Wintershall, a subsidiary of German chemicals giant BASF.

“Russia has long considered an expansion of Nord Stream, because in Europe the demand for gas continues to grow.”

Alexander Novak, Russian Energy Minister

Industry sources told Handelsblatt that Wintershall was so annoyed by the South Stream decision that it only informed Gazprom of its willingness to take part in discussions over the new Nord Stream project an hour before the deal was due to be announced.

It was such short notice that Wintershall could not be added in the joint press release.

In the end, Wintershall did release its own statement. “With Gazprom, we achieved pioneering work with Nord Stream and have already built more than 4,000 kilometers of pipelines together. We have been working closely together on natural gas extraction for years in western Siberia. We are in discussions to participate in two further lines of the Baltic Sea pipeline.”

There were plenty of personalities present when the deal was announced. Gerhard Schröder, the former German chancellor who is now the chairman of Nord Stream Pipeline, of which Gazprom is the majority owner, showed up at the signing in St. Petersburg.

Rainer Seele, the outgoing chief executive of Wintershall, attended the signing in a private capacity, just a short while before he takes up his position as chief executive at another of the project participants, the Austrian company OMV.

 

Nord Stream Pipeline in the Baltic Sea-01

 

“Russia has long considered an expansion of Nord Stream, because in Europe the demand for gas continues to grow,” Russian Energy Minister Alexander Novak told Handelsblatt, in discussing the reasons for the Baltic Sea expansion. “And our participating partners see shrinking natural gas production in Europe and a need for more imports.”

Mr. Miller described the expansion as “the shortest connection of the northern Russian gas fields to Europe.” He said this strengthens Europe’s supply reliability.

Source Bloomberg Vladimir Putin Russia s prime minister at the time 2011 Gerhard Shroeder Germany s former chancellor Alexei Miller CEO Gazprom opening ceremony new Nord Stream pipeline
Gerhard Schröder, the former German chancellor seen left, is chairman of Nord Stream, the company which owns and operates the pipelines. In 2011, Russia’s then-prime minister Vladimir Putin, middle, and Gazprom’s chief executive, Alexei Miller, attended the opening ceremony of the pipeline. Source: Bloomberg

 

His comments alluded to the current conflict between Russia and Ukraine. So far, Gazprom has delivered the majority of its gas exports over a transit pipeline through Ukraine. Moscow wants to end that by 2019. Gazprom officially blames the enormous expense of renovating the transit route there.

But Andriy Kobolev, head of the Ukrainian supplier Naftogaz, told Handelsblatt that it is “purely politically” motivated. “Our pipeline is in better condition than many Russian (pipelines),” he said.

Western companies are tentatively doing business with Russia again, despite sanctions over the ongoing conflict in Ukraine. Shell wants to considerably expand a liquid gas project (Sachalin-2) with Gazprom. BP plans to get involved in an oil field of the government-controlled company Rosneft for $700 million.

After months of uncertainty, the lines are flowing again.

Mathias Brüggmann is the head of Handelsblatt’s foreign affairs desk and has worked as a correspondent in Moscow, Warsaw and Brussels. To contact the author: brueggmann@handelsblatt.com

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