Pipeliners

MOSCOW (Sergey Kolchin for RIA Novosti) - Recently an agreement was signed between Russia and Germany on building a North European gas pipeline (NEGP). The offended Ukraine, Poland and the Baltic countries immediately dubbed it "the Putin-Shroeder pact." Discontent in the former "transit" counties is understandable, but this project is obviously more economically than politically oriented. Gazprom, BASF AG and E.ON AG signed a basic agreement on building the North-European Gas Pipeline, with its route running under the waters of the Baltic Sea. The parties intend to set up a Russian-German joint venture in which a 51% stake will belong to Gazprom, while BASF and E.ON will hold 24.5% stakes each. Total investments, necessary to complete the project, are over 4 billion Euros. The NEGP will connect the Baltic seashore near the city of Vyborg with the Greifswald region on the German coast. The 1,200 km pipeline will be put into operation in 2010. The plan is to build two parallel gas pipeline legs. The first stage envisages the construction of one 27.5 bcm capacity leg, with the second one to be commissioned later and double the NEGP capacity to 55 billion cubic meters of natural gas per year. The project is designed to create a direct route for gas deliveries from Russia to its biggest market in Western Europe, bypassing transit countries. It will benefit not just Germany alone, but other countries as well, since the resources of alternative gas producers in the region (Norway, the Netherlands, Britain) are close to depletion. Both Russia and Germany stand to gain from the project. Today, Germany is Gazprom's main export market. The NEGP will be the company's additional route providing gas to this steadily growing market. Also it will bolster the gas giant's position and reputation as a reliable gas supplier to Germany and other consumers in Western Europe. Through the NEGP Germany will be directly connected to Russia's gigantic natural gas fields. It should help quench Germany's and other countries' growing gas thirst and ensure reliable gas supplies. European officials, experts and mass media say that stable energy supplies are fully dependent on Europe's relations with Russia for years to come. Besides, due to the NEGP's integration into the existing German pipeline systems of Wingas and E.ON Ruhrgas, German companies will receive additional gas volumes. Experts predict that during the first year of the NEGP operation Gazprom will earn about $4 billion. Russia's transit expenses will also decrease. Currently they add up to 20% of the receipts for gas transit via Ukraine alone (13% for transit costs, and 7% for keeping up pressure in the pipes). Besides, the possibility of new countries - Great Britain, the Netherlands and Denmark - joining Gazprom's gas grid gives Russia a great chance to expand its energy presence in Europe. Today's favorable market conditions and high oil and gas prices helped bring the project to fruition. Earlier other Russian gas-transportation projects were discussed with equal enthusiasm - laying an additional leg of the West Siberia-Western Europe pipeline through Belarus and the Blue Stream route to Turkey. To put it mildly, both projects failed to meet expectations. In the first case, Russia was unable to provide ample amounts of gas without investing heavily in the gas production, while the western partners would willingly loan money to Gazprom, but didn't want to make direct investments. In addition, transit dependence on Minsk turned out to be no better than transit dependence on Kiev. As regards the second project, the Turks suddenly refused to buy all the gas offered to them at fixed world prices. Later the situation was rectified, but the existence of problems was an undeniable fact. However, radical changes have taken place since then. Fuel prices have risen steadily and obviously to stay for long. World gas giants are ready to directly invest into both the Russian gas industry and the construction of infrastructure and gas processing facilities. There is even a rivalry among the investors for the right to participate in Gazprom projects. More to it, they are willing to share profits and property with Gazprom in the field of gas supplies to European consumers. Consequently, the long-known projects to develop huge gas deposits in the North of Russia (Zapolyarnoye, Prirazlomnoye, Shtokmanovskoye, Yuzhno-Russkoe, etc.) are becoming quite promising and profitable. The primary source of raw materials for the NEGP will obviously be the Shtokmanovskoye gas condensate field. Gazprom has recently published a preliminary list of five companies to form this gas field's development consortium. It includes Norwegian companies Hydro and Statoil, the French Total and American Chevron and ConocoPhilips. Sergey Kolchin is Doctor of Economics and senior researcher at the Institute for International Economic and Political Studies, Russian Academy of Sciences.