PIPELINE POLITICS

Cutting Out the Middleman

nord stream_imago_Rainer Weisflog
Installation of a pipe in Finsterwalde in the Elbe-Elster district in the German state of Brandenburg.
  • Why it matters

    Why it matters

    Russia wants to bypass many Central and Eastern European nations because of poor political relations and ship gas directly to key economic partners in Western Europe.

  • Facts

    Facts

    • Nord Stream currently consists of two gas pipelines connecting Germany and Russia across the Baltic Sea with an annual capacity of 55 billion cubic meters of natural gas.
    • Nord Stream 2 will add two more pipelines and an additional 55 billion cubic meters of natural gas, bringing total capacity to 110 cubic meters annually.
    • The chief executives of Austria’s OMV and Royal Dutch Shell will reportedly sign a final deal at the Eastern Economic Forum in Vladivostok in September.
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Russian energy giant Gazprom will expand the Nord Stream gas pipeline with the participation of Western companies, according to the Russian daily “Kommersant.” The partners have concluded negotiations, the newspaper reported, and are expected to sign the deal soon.

In June, Gazprom announced plans with Royal Dutch Shell, Germany’s E.ON and Austria’s OMV to add two more pipelines. Nord Stream 2, as the project is called, will run the same 1,250 kilometer route from Vyborg in northwestern Russia across the Baltic Sea to Greifswald in northern Germany.

The expansion will increase Nord Stream’s capacity by 55 billion cubic meters annually, bringing its total capacity to 110 billion cubic meters of gas. Nord Stream currently consists of two pipelines completed in 2012.

It’s the longest sub-sea gas pipeline in the world and the first to directly connect Russia to Western Europe. The original project was controversial in its own right because it bypassed traditional transit routes that run through German allies in Central and Eastern Europe.

More recently, Russian officials have said that Moscow plans to phase out its transit routes through Ukraine by 2019. The Kremlin backpedaled over the summer, saying it would enter into negotiations with Kiev to extend a 10-year contract signed in 2009. The neighbors have repeatedly faced off over price and debt disputes.

The bad blood has not stopped many Western companies from cutting deals with the Kremlin.

Tensions boiled over into outright hostility after Russia annexed Crimea in the spring of 2014 and war broke out in eastern Ukraine. Kiev’s pro-Western forces are facing off against Russian-backed separatists.

The European Union and the United States accuse Russia of intervening in Ukraine militarily, a charge Moscow denies, and have imposed economic sanctions.

The bad blood has not stopped many Western companies from cutting deals with the Kremlin.

On Friday, the president of Austria’s OMV, Rainer Seele, was in Moscow to discuss the final preparations before a shareholders agreement is signed.

France’s Engie is also reportedly interested in the project in addition to OMV, Germany’s E.ON and Wintershall, and Royal Dutch Shell.

Mr. Seele and Shell’s Chief Executive, Ben van Beurden, will be guests at the Eastern Economic Forum in Vladivostok in early September. Citing unnamed sources, Kommersant reported that the deal would be signed at the forum. Kremlin spokesman Dmitri Peskov denied the report.

“As far as I know, this information isn’t true,” said Mr. Peskov, adding that the list of energy agreements to be signed during the forum has not been finalized.

It would be unusual if the latest Nord Stream development were missing from the list. Projects as huge as the Nord Stream expansion are normally signed at the big economic forums.

Nord Stream 2 is a purely European project, but the Eastern Economic Form focuses mostly on relations with Asian nations, particularly China.

 

André Ballin writes for Handelsblatt from Moscow, Russia. To contact the author:  andre.ballin@DerStandard.at

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