Bypassing the Baltic

by Paolo Sorbello

The pipe-dream has become reality. Since the late Nineties, Russian energy giants have been designing routes that would provide an alternative to the main web of Soviet-era pipelines. After the collapse of the Soviet Union in 1991 ideology was replaced by pragmatism in the Russian energy policy. Instead of pipelines with names such as ‘Brotherhood’ or ‘Union’ crossing the former Socialist region, Russia became more interested in projects that would have to rely on fewer and more reliable transit countries. During Putin’s first two terms as President of the Russian Federation, Moscow found in Berlin the perfect partner to foster its own interests in Western Europe. Hence came Nord Stream, which was deliberately designed to bypass by sea the Baltic countries that proved to be politically hostile to the Kremlin, and now delivers gas straight to Greifswald, Germany. Estonian, Latvian, and Lithuanian territorial waters and exclusive economic zones are circumvented by the path of Nord Stream, while Polish waters and shores are ignored as a possible landing territory.

Nord Stream – photo credit: nord-stream.com

Friend-of-Germany Vladimir Putin backed in 2005 the creation of the Gazprom-led consortium that completed the feasibilty studies to build a pipeline with challenging characteristics: the length of the offshore section, the depth and the temperature of the sea, and the monitoring system were all great engineering concerns at the time. The consortium employed the newest technological instruments in order to set a landmark in offshore piping – and perhaps to get ready for the next big challenge, South Stream, which will run 900 km underwater in the Black Sea – using pipe-tracking systems that allow to trace serialized components and to get real time segment details, so as to monitor all activity and any malfunctioning. The first pipeline was connected in the summer of 2011 and the first gas reached Germany among the cheers of the Russians and the pleased oversight of Gerhard Schroeder, former Chancellor of Germany and CEO of the Nord Stream consortium since its establishment, and Guenter Oettinger, EU Energy Commissioner, who witnessed the opening ceremony on 8 November 2011. The first of the two strings of the pipeline reached full capacity in mid-May 2012, delivering for the first time the planned 75 million cubic meters daily. This makes it possible for the consortium to meet the contractual obligation of supplying 27.5 billion cubic meters (bcm) annually with each of the two strings for a total of 55 bcm, a little less than one third of Europe’s total gas imports.

The connection of the second string earlier in April was an additional confirmation that the pipe-dream of bypassing the Baltic countries had become the new outlet for Russian gas. The know-how exchange with leading European energy corporations has been beneficial for all parties involved. However, those who were left out suffered from the exclusion, which manifested itself especially with regards to their relationship with Brussels. After the EU membership was granted to Estonia, Lithuania, and Latvia, these countries have tilted the balance of European energy ties with Russia for both their effective dependence from Moscow and their desire for emancipation through their participation in the Union’s common market.

The Baltic countries saw in their relationship with the EU a bargaining chip against Moscow’s preponderance. However, the 3rd Energy Package – which established a unique market and set rules for transparency and third-party access to the transmission system – proved to be flexible enough to grant a fundamental exception to Nord Stream and to be ready to replicate the favor for South Stream as well. As soon as the standard was set, Russophiles in Brussels and Berlin were ready to enable deviant behaviors that would enhance their ability to sign a few remunerative contracts and avoid both transit and political risk. Nord Stream in fact successfully bid for an exceptional status regarding the rule of third-party access (TPA). Gazprom being the monopolist over natural gas exports in Russia (by law since 2006), and Transneft being the domestic monopolist over the transmission system, it would be practically impossible for any third company to use the pipeline either east- or westward.

Nord Stream has become the longest subsea pipeline in the world, stretching at over 1,200 km (759 miles) under the Baltic Sea. Russia is demonstrating the ability of successfully flexing its muscles towards its political adversaries and sealing proficuous deals with its business partners. Germany’s E.On and Wintershall, French GDF Suez, and Italian ENI are perhaps too important in the whole economy of their own countries to be rebutted in their relationship with Gazprom. However, revenues from oil and gas exports alone have accounted for approximately 40% of the total Russian revenues in the last few years and decisively impacted Moscow’s ability to allocate rubles for public services. Perhaps this could represent the Achilles’ heel in the future low-carbon Europe that Brussels is trying to build when its members are not in a meeting room with Russian businessmen.

Both “Streams” bypass the Baltic countries, Poland included, and Ukraine. The latter has been the protagonist of a few gas rows with Moscow in 2006 and 2009. The high investment for building the two pipelines is going to pay back in a decade or so (the total cost for Nord Stream has been set to 8 billion euros which is “roughly equivalent to the amount of money we lost in just a few days during the gas crisis with Ukraine” said Miller in an interview with the SPIEGEL online http://www.spiegel.de/international/business/0,1518,737443,00.html), and by securing the “exceptional” status from Brussels they can avoid adjusting to the new EU regulations on the internal gas market. Although many experts still stress the irrelevance of such a great number of  pipelines stemming from Russia when the gas is not ready to flow (for both pipelines there is the question of who is going to supply the natural gas), the issue is more geopolitical in this case. By securing a foothold in the European market and by acquiring a more direct connection with the principal gas consumers in Western Europe, the Kremlin and Gazprom are pursuing their interests regardless of business and technological constraints. Having won the political and legal battle, they can be sure to have reached important results in the West, even if they will have to bargain gas prices with Turkmenistan or Azerbaijan in order to fill the pipelines. For the bypassed countries, this could mean an important shift in their internal energy policy, which could turn towards higher efficiency and could favor the increase of renewable energy in the domestic energy mix.

Paolo Sorbello coordinates the Energy Policy Studies unit at the Portal on Eastern and Central Europe and the Balkans (www.pecob.eu). His interests include the energy and foreign policies of the former Soviet republics, especially in the Central Asian region. He has worked at several think-tanks and online publications based in Europe and the United States. Additionally, he has published a book with the title The Role of Energy in Russian Foreign Policy towards Kazakhstan (Lambert Academic Publishing, Saarbruecken, June 2011). He holds a MA in International and Diplomatic Studies from the University of Bologna.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

documenteast.wordpress.com/

Documentary photography from Eastern Europe and former Soviet Union

Global Risk Insights

Your Source for Political Risk Analysis

balticworlds.com

Exploring the Baltic worlds

presidentialactivism.com

Research on Presidential Activism and Veto Power in Europe and beyond

Vostok Cable

A Russian and East European Studies Blog

Estonian World

Exploring the Baltic worlds

The View East

Central and Eastern Europe, Past and Present.

bottleneck analysis

Fresh insights about energy, politics, travels, sports, music...

%d bloggers like this: