MOSCOW/BERLIN - The Nord Stream gas pipeline from Russia to Germany being launched on Tuesday was once billed as a means to bring extra Russian gas to Europe, but the costly link's main purpose now is to lessen Moscow's reliance on Ukraine's transit pipelines.
The new 7.3 billion euro($10.04) pipeline under the Baltic Sea was designed at a time when European Union demand for natural gas and for imports from Russian gas export monopoly Gazprom were rising.
Because gas demand in the EU has fallen since the beginning of the debt crisis in 2008, and liquefied natural gas (LNG) imports to western Europe have risen sharply, new supplies are no longer needed at present.
One major benefit for Gazprom remains. Ukraine’s pipelines, which have brought 80 percent of Russian exports to Europe have been vulnerable to disruption during repeated disputes between Kiev and Moscow over prices that have led to flows being cut off in mid-winter.
The route under the Baltic is immune from such rows.
"Nord Stream was first drawn up to increase Russian gas supplies to Europe as North Sea output was in decline, but with demand falling this is no longer the case: Gazprom will simply take away volumes from Ukraine," said Vladimir Milov, a former deputy energy minister who is now an opposition activist.
Nord Stream will ultimately be able to send 55 billion cubic metres of gas a year under the Baltic Sea, the rough equivalent of German, French, Dutch and British consumption of Russian gas last year.
The vast bulk of the gas — 25 bcm from Yuzhno-Russkoye, an upstream joint venture of Gazprom and Germany’s Wintershall — will simply be rerouted to the new link from the transit pipelines via Ukraine.
"The balance of power has changed, and not in favour of Ukraine. And Nord Stream is a main factor for this," said Katja Yafimava, a research fellow at the Oxford Institute for Energy Studies who specialises in gas transit issues.
For Russia, security of its links westward is vital as Gazprom relies heavily on European customers for revenue.
Russia has so far failed to find major new gas customers in other regions, and although talks with China are under way, analysts say first flows are still years off.
In the European Union, Germany and its western neighbours stand to benefit most from the new route, while Poland — which also depends heavily on Russian gas imports via Ukraine and is itself a transit country — sees the pipeline as an attack on its interests.
The new pipeline from Russia makes landfall in the German town of Greifswald, just a few kilometres away from the border with Poland, cutting the country out of the route.
SHOW OF UNITY WITHOUT POLAND
German Chancellor Angela Merkel, Russian President Dmitry Medvedev, French Prime Minister Francois Fillon as well as Dutch Prime Minister Mark Rutte will attend the launch in a display of unity over a project that has divided Europe.
"It was wrongly seen as (a German-Russian project) because it became clear quite quickly that the Netherlands and France also took part. And considering the countries that will be receiving the natural gas – from Belgium and Great Britain – it has always been a European project," former German Chancellor Gerhard Schroeder, now Nord Stream’s chairman, said.
"Some people forget that the project has been part of the EU’s transeuropean network since 2006 – in order words, it was supported by all EU nations. That’s why the resistance at times from some European partners was a bit odd. But that’s all history now."
Warsaw, however, sees its tensions with Russia over gas as very much a live issue.
Poland’s gas monopoly PGNiG filed an arbitration procedure against Gazprom on Monday to cut import prices under a long-term supply deal.
Gazprom owns 51 percent of the project with German companies Wintershall and E.ON each holding 15.5 percent, and France’s GDF Suez and Dutch firm Gasunie each with 9 percent.
ROW OVER LONG-TERM CONTRACTS
Behind the smiles at Tuesday’s ceremony there were be other concerns over Europe’s relations with Gazprom. Present will be chiefs of European gas companies who stand to lose billions of dollars on Gazprom’s long-term oil-linked contracts.
Like Poland’s PGNiG, Germany’s E.ON is suffering from long-term gas deals, which link its Russian import rates to high oil prices while it is forced to sell the gas on to customers at lower retail prices linked to the freely traded spot market.
To protect its own consumers, the European Commission is supporting calls to renegotiate long-term, oil-indexed gas deals.
