Russia's Pipeline Politics in the Baltic Sea - 1

Some thoughts/materials on the Nord Stream pipeline project:

Nord Stream is a gas pipeline to link Russia and the European Union via the
Baltic Sea. It will carry natural gas to supply both businesses and households.
The new pipeline will be an important factor of energy security in Europe.

This is the quote taken from the official web-site of the Nord Stream project. But is it really so that this pipeline project will ensure and contribute to the energy security of Europe?

Dr. Mikhail Korchemkin:

(Founder and managing director of East European Gas Analysis, a consulting company that specializes in cost-benefit and financial analysis of natural gas projects in the former Soviet Union)

Russia's gas export plans need to adjust to the new energy strategy of the EU

The European Commission has proposed a new energy package that can result in significantly lower growth of the EU gas imports. Any reduction of gas consumption in the EU will result in lower imports from Russia. South Stream and Nord Stream-2 were conceived as bypass projects without increasing export volumes of Russian gas. These projects are too risky under the new market conditions. If the EU fulfills just 25% of its goals, the first line of the Nord Stream project will not be needed. Nord Stream and South Stream projects require the construction of new feeding pipelines from Shtokman and Yamal. The transit cost of gas via Ukraine and Belarus is lower than the transmission cost of Nord Stream and South Stream (with feeding lines).

Excessive Pipeline Projects of Gazprom - 1

Every winter during the new round of gas conflict with Ukraine, some experts note that for secure supplies of Russian gas, the EU needs the Nord Stream and South Stream projects to be completed as soon as possible. A simple math can prove that this statement is incorrect:

In case of completion of the export projects of Gazprom, Ukraine will remain the most important gas transit partner of Russia. If all bypassing pipelines are fully loaded in case of another Russian-Ukrainian gas dispute in the future, Gazprom would still need to ship about 300 million cubic meters (mmcm) of gas daily to Europe via Ukraine. This is equal to the daily transit flow of early January 2009. Ukraine would siphon over 20 mmcm/day of transit gas in the first week of the conflict. Under the realistic scenario, the Ukrainian transit volume drops to 200 mmcm/day, but the siphoning increases slightly.

To provide secure supplies of gas to Europe, Gazprom would still need to use the underground gas storage facilities (UGSF) of Ukraine. Gazprom would have to have the Ukrainian UGSFs fully loaded - in case of a new conflict with Belarus or Poland, Gazprom would need to withdraw about 160 mmcm of gas daily.

The Nord Stream pipeline would allow Gazprom to turn off gas supplies to Belarus and Poland without affecting exports to other countries. Therefore, the worries of the Polish authorities about the negative effect of the Nord Stream project on the security of gas supply to Poland are well-grounded. There are no doubts that having a bypass pipeline in case of a political dispute, Russia would turn off gas flow to Poland. The Nord Stream and South Stream pipelines are designed as bypass pipelines without increasing Russian exports or improving the security of gas supply to Europe. On the contrary, these projects are designed to reduce the security of supply to Belarus and the EU member states of Germany, Poland, Hungary, Romania, Bulgaria and Greece. Russia will be able to turn off the gas flow to any of these countries without decreasing other exports.

The excessive projects of Gazprom have to be paid by gas consumers of Russia, which would extend the period of the economic crisis in the country. During the previous crisis in 1998-1999, the nominal price of gas in rubles was frozen, while the real price has dropped by three-quarters. Additionally, the Russian government has devalued the nominal debt of Russian gas consumers to Gazprom by 40% (the real debt has dropped by over 80%). Gazprom has suffered losses for two years, but the low domestic price of gas has helped all other businesses to recover faster.

Construction of bypassing pipelines for political purposes is appropriate for a "Ministry for Foreign Energy relations", but not for a company that claims the priority of profit maximization

Nord Stream, South Stream hurt Czech energy security?

In January 2008 (the record month of January in the history of Russian gas exports), the daily transit flow of Russian gas through Czech Republic was 41 million cub m lower than in January 1999. Czech daily transit revenues were down $0.6 million. The Yamal-Europe pipeline has reduced the dependence of Russian gas exports on Ukraine, Slovakia and Czech Republic. Nevertheless, the experience of 2006-2009 shows the security of supply of gas to Eastern Europe has decreased. If the Nord Stream and South Stream pipelines are completed, the gas transit through Czech Republic can be reduced to zero. A complete cutoff of Russian gas exports to Czech Republic would have no effect on deliveries to other countries. The Nord Stream and South Stream pipelines increase political risks and reduce the security of gas supply to all countries of Eastern Europe.