Gazprom Starts Filling Nord Stream Gas Pipeline
OAO Gazprom will today start pumping natural gas into a $10 billion subsea pipeline from Russia to Germany, bypassing Ukraine, where disputes halted supplies to European customers twice since 2006.
The Nord Stream pipeline runs under the Baltic Sea and will be able to carry enough gas to supply 26 million European homes when it's fully up and running next year. It’s the first direct link between western Europe and Russia, which supplies about 25 percent of the European Union's gas.
Clashes between Ukraine and Russia over gas prices and debts disrupted shipments to Europe and led Gazprom to seek alternative routes. Nord Stream may weaken Ukraine’s hand in negotiating gas supply deals with Russia. Ukraine, which carries 80 percent of Russian gas to the EU through Soviet-era pipes, is seeking to revise its long-term contract for fuel imports.
Nord Stream “will be especially important” if existing agreements between Russia and Ukraine “break down this winter over the pricing issue, thus leading to a new dispute,” said Katja Yafimava, a research fellow at the Oxford Institute for Energy Studies.
Gazprom and its partners, BASF SE’s Wintershall AG unit, E.ON Ruhrgas AG, Nederlandse Gasunie NV and GDF Suez SA, are building the pipeline in stages. The first line will have a capacity of 27.5 billion cubic meters a year, doubling to 55 billion cubic meters when the second is ready in 2012.
“We are slowly and surely turning away from the dictate of transit states,” Prime Minister Vladimir Putin said yesterday as he announced that Russia’s gas-export monopoly would start filling the Nord Stream link with gas. The pipeline will begin commercial operations next month.
European winter gas prices, led by the U.K.’s National Balancing Point, the continent’s largest single market for the fuel, advanced to near three-year highs this year amid heightened concerns about supply security and rising import dependency as North Sea production dwindles.
Gas for delivery in Britain during the six-month heating season from October reached a high of 78.25 pence a therm on Aug. 31, the highest since October 2008. It closed at 73.60 pence at yesterday up 17 percent this year. That’s equal to $11.86 a million British thermal units.
Gazprom may divert as much as 20 billion cubic meters that is currently shipped through Ukraine through Nord Stream, Chief Executive Officer Alexei Miller said in May, according to state television Rossiya 24. Sergei Kupriyanov, a spokesman for Gazprom, declined to comment on expected volumes yesterday.
Ukraine’s state-run energy company NAK Naftogaz Ukrainy, which pumps about 100 billion cubic meters of gas a year to Europe, has an annual transit capacity of 142 billion cubic meters.
“Reduction in transit volumes will cause Ukraine to lose about $550 million in revenues from transit next year,” said Denis Sakva, an energy analyst at Dragon Capital, a Kiev-based investment bank.
Nord Stream is nearing completion as Ukraine, the biggest buyer of Russian gas, seeks lower gas purchases from Gazprom and revisions to a pricing formula. Gazprom’s Chief Executive Officer Alexei Miller had offered to revise the contract if Naftogaz agreed to merge with his company. That proposal was rejected by Ukraine.
The eastern European country may have to turn to an international court “as a last resort” in order to revise gas supply contracts, President Viktor Yanukovych said on Sept. 3, according to his website.
From Germany, Nord Stream’s first line will be connected to the OPAL system that connects the Czech Republic. The second line will connect to the NEL onshore pipeline and carry gas to western Germany and other European countries.
Gazprom has contracted about 22 billion cubic meters to supply customers including EON AG and GDF Suez (GSZ) via Nord Stream in the coming years.
To contact the editor responsible for this story: Will Kennedy at email@example.com