Michaił Krutikhin | Energy Expert; Partner with consulting agency RusEnergy
It is not Germany but Russian President Vladimir Putin who wants extra branches of the Nord Stream pipeline. German companies and Shell signed a memorandum (not an agreement) stating they would not object to building new lines there. It is a profitable deal for them as reimbursement of the investment is guaranteed by Gazprom regardless of whether gas is actually transported through it.
Matthias Dornfeldt | Assistant Professor, Berlin Centre for Caspian Region Studies, Freie Universität Berlin
The envisaged expansion of the Nord Stream gas pipeline in the current tense situation between the Russian Federation and the West is not an initiative of the German federal government. There have been no detailed official statements from the German, Austrian or Dutch governments on the participation of their countries’ companies in the planned strategic project with Gazprom.
However, in a working meeting between Alexey Miller, chairman of the Russian energy company Gazprom’s management committee, and Sigmar Gabriel, the German minister for Economic Affairs and Energy and vice chancellor, which took place on 7 July 2015 in Berlin, both addressed the reliability of Russian gas exports to the EU and its candidates and the progress of the Nord Stream II project, but with the high-ranking German politicians sticking to the sanctions against the decision-makers in the Kremlin. Thus, it is in such a difficult international environment unrealistic to expect the full support of politicians in the most important Member State of the EU for this titanic investment. Furthermore, the European Commission´s view on the expansion of the pipeline can be considered to be sceptical.
The memorandum of understanding signed by Gazprom and European energy companies Shell, E.ON and OMV during the St. Petersburg Economic Forum on 18 June, aims at the construction of two additional branches—3 and 4—of Nord Stream, a 1,224 km-long pipeline running from Vyborg in Russia via the Baltic Sea to Greifswald in Germany. The enlargement and extension of Nord Stream had already been in discussion during the years after 2011, when the primary pipeline was opened. But the initial idea was to supply the profitable British market. BP was one of the main actors in the theatre. If Nord Stream II is implemented, a doubling of the current 55 bcm would be the result.
Nord Stream AG is the project operator and is owned by OAO Gazprom (51%), E.ON SE (15.5%), Wintershall Holding GmbH (15.5%), N.V. Nederlandse Gasunie (9%) and ENGIE (formerly GdF Suez) (9%) and is based in Zug, Switzerland.
Nord Stream I enhanced the reliability of Russian gas supplies to Germany and Western Europe by circumventing unstable and unreliable transit countries such as Ukraine, then dominated by oligarchs. Beside this, it brought cheap Russian natural gas to the industrial regions of Western Europe. The Federal Republic of Germany is the biggest importer of Russian natural gas on the continent. Last year, Gazprom sold 40.3 bcm to the German domestic market.
The existing two branches, which have a total capacity of 55 bcm, are currently not fully used to capacity. This sounds a bit odd, since domestic gas production in the EU is steadily declining, but, on the other hand, natural gas consumption in Western and Northern Europe has decreased due to the ongoing economic crisis, the German energy initiative Energiewende and the abundance of cheap coal.
Furthermore, Gazprom is unlikely to obtain an exemption to “Third Party Access” requirements for the newly built OPAL and NED natural gas pipelines, which distribute gas coming from Nord Stream in Lublin, Poland, to various destinations in Central and Western Europe. This infrastructure requires adaption of the EU internal grid and is outside of Gazprom’s control.
Financial challenges remain a big obstacle for the Russian company and that will last for the next several years.
The plans by Russian energy firms to build new pipelines in Europe testify to the fact that the European market is and will remain a priority for Russia. These new plans also confirm that Russia’s continuing strategic goal is to diversify its gas transit routes to European customers.
Nevertheless, another pipeline project, the Southern Gas Corridor, will be a key priority for Russia, taking into consideration the need for a stable and reliable supply of natural gas to the Western Balkans and Central European countries, where significant growth in gas demand can be observed.
An agreement on cooperation signed recently in St. Petersburg with Gazprom includes some of the biggest Western European companies. Interest in participation in this project has also been expressed by German companies Wintershall and VNG, with the latter confirming the continuation of its cooperation with Gazprom on expanding gas storage facilities in Germany. French and Belgian companies have also held talks on gas supplies from Russia. This demonstrates that regardless of what really happens with the expansion of Nord Stream or other detailed plans, a large portion of European gas-consuming businesses not only sees a need to normalize relations with Russia, something which have been difficult for more than a year now, but is also trying to revive and strengthen these ties by supporting new joint strategic projects.
It is unlikely that all of the currently planned projects will be completed at their planned capacities. It is likely, however, that Gazprom will seek to simultaneously implement a more limited version of the Turkish Stream gas pipeline and at least one new branch of Nord Stream, which would allow it to maintain its supply levels to the key European market.
The presence of representatives of major European energy companies in St. Petersburg and the documents they signed show that from their perspective cooperation with Gazprom and Russia is crucial for the future of both the European gas market and the specific companies operating on it. In contrast to the European Commission’s statements and actions, which are aimed at reducing the EU’s dependence on Russian gas, this may indicate a growing conflict of interest within the EU on finding an optimal formula, acceptable both politically and by European businesses, for cooperation with Russia on continued gas supplies.
