Controversial North Europe Gas Line Begins Construction

The dual-pipeline project, the first phase of which is to be completed in 2011, will allow Russia to pump its natural gas directly under the Baltic Sea to Germany … and is the result of an immense support effort from German industry and politicians.

The dual-pipeline project, the first phase of which is to be completed in 2011, will allow Russia to pump its natural gas directly under the Baltic Sea to Germany … and is the result of an immense support effort from German industry and politicians.

The dual-pipeline project, the first phase of which is to be completed in 2011, will allow Russia to pump its natural gas directly under the Baltic Sea to Germany … and is the result of an immense support effort from German industry and politicians.

Gerhard Schröder, the former German chancellor who is now chairman of the shareholders committee overseeing Nord Stream, lobbied hard for the 750-mile project, saying he believed that it would bring Russia closer to Europe…

The European Union obtains nearly 45 percent of its gas imports from Russia, while 70 percent of Russia’s gas exports are earmarked for the 27-country bloc … [br]

But the project has been hugely contentious in Europe, where countries have raised concerns ranging from environmental effects to energy security because of an increase in dependence on Russian natural gas, according to this article in the New York Times.

The project was bitterly criticized by Polish politicians, who accused Germany of going behind the backs of its Eastern European neighbors by forging a closer energy alliance with Russia and making Germany in particular and Europe in general more dependent on Russian gas …

Poland and the Baltic States also complained that Nord Stream would reduce Russia’s dependency on them as transit countries and deny them transit fees, which the Russian gas monopoly Gazprom has been trying to achieve for many years.

The project also faces challenges as a result of the economic downturn, which might make it hard for Nord Stream to be as profitable as its shareholders, including Gazprom, expect… [br]

Gazprom is Nord Stream’s majority shareholder, with 51 percent. The minority shareholders are BASF and E.On of Germany, and Gasunie of the Netherlands. GDF Suez of France is expected to join the consortium at some point.

The repeated disputes over gas supplies and transit costs involving Russia and Ukraine, which is the most important transit country in bringing Russian gas to Europe, was one of the main reasons Russia chose the Baltic Sea route for Nord Stream.

Those disputes led to sharp declines of Russian gas deliveries to Europe, with Gazprom either closing the pipes to put pressure on Ukraine, or Ukraine siphoning off gas supplies destined for European customers.

Those disruptions persuaded the Kremlin and the German government to seek alternative routes.

The first of the two Nord Stream pipelines will supply about 970 billion cubic feet a year, roughly a third of Germany’s gas demand. That pipeline is to be completed by 2011.

It is unclear, however, when the second pipeline would be put into operation because the gas sector in Russia and Europe has not recovered from the economic crisis.

According to the International Energy Agency, overcapacity in gas pipelines and liquefied natural gas terminals will increase to about 250 billion cubic meters by 2015 as demand remains subdued. That is four times the level of spare capacity in 2007.

Some European energy companies that buy their gas from Russia, including E.On and Eni of Italy, have been unable to sell gas on to the consumer at the higher prices they had negotiated previously with Gazprom.

In fact, with more gas entering the spot market and more gas exchanges being established, competition has increased in the sector.

Analysts say Nord Stream, if it is to be viable, will need to be more flexible and competitive with its main customers.