Fico, EU critical of pipeline project

PLANS to expand the Nord Stream pipeline, which would enable the transit of Russian gas to bypass Ukraine as well as Slovakia en route to Europe, have prompted anger in Bratislava but analysts have questioned its effectiveness and the expanded pipeline is far from certain.

(Source: Sme)

“They’re making fools of us,” Prime Minister Robert Fico said in response to the announcement that Russian giant Gazprom and western energy partners are seeking to double the capacity of Nord Stream, which pumps gas under the Baltic Sea. “It isn’t possible to talk on a political level about the need to stabilise Ukraine and at the same time adopt a decision that places Ukraine and also Slovakia in an unenviable position, as this affects the transit of huge amounts of gas through both Ukraine and Slovakia.”

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Fico voiced his criticism during a meeting with Ukrainian Prime Minister Arseniy Yatsenyuk, who visited Slovakia September 10, and the latter described the plan as an anti-Ukrainian and anti-European project.

Poland also appears opposed to the plan. The European Commission Vice President for Energy Union, Maroš Šefčovič, said the idea raises a “host” of questions on how the project fits with the EU’s energy security and regulatory priorities.

Gazprom and western energy companies BASF, E.ON, ENGIE, OMV and Shell signed on September 4 a shareholders’ agreement to construct Nord Stream II pipeline with capacity of 55 billion cubic meters by 2019. The first pipeline of Nord Stream I was opened in November 2011 and the second one in 2012 at a cost of €7.4 billion.

“Nord Stream II will double the output of our up-to-date non-transit route via the Baltic Sea,” stated Alexey Miller as quoted by the Gazprom website. “It is important that these are the new gas volumes that will be sought in Europe due to the continuous decline in its domestic production. The fact that the global energy majors are participating in the project bespeaks its significance for securing a reliable gas supply for European consumers.”

Impacts on Ukraine and Slovakia

The expansion of Nord Stream and bypassing Ukraine and Slovakia may cost Ukraine billions of euros and Slovakia hundreds of millions of euros each year, said Fico, who rejected the notion that the deal between Gazprom and the European energy companies is only a matter of business. He believes that these companies operating in other EU countries have “betrayed” Slovakia as an EU member country.

This is at odds with political agreements made at the European Council, Fico said while adding that he will raise the issue at next month’s EU summit.

Yatsenyuk stated that Ukraine will lose $2 billion per year in income from gas transit through his country due to the construction of Nord Stream II, while adding the move will not bring any more energy independence to the EU. Slovakia’s annual loss may amount to $800 million, according to Yatsenyuk.

Eustream, the partially state-owned Slovak company that transits Russian natural gas across Slovakia from the Ukrainian border westwards, is closely watching the development of this project and pointing to risks it poses for energy security in the EU.

“Even though the final shape of the project is not clear – in light of the inadequate adjoining infrastructure at German borders – in terms of announced volumes it can be expected that the realisation of the project will enable a complete bypass of the Ukrainian route with all the potentially grave consequences for EU energy security,” Eustream spokesman Vahram Chuguryan told The Slovak Spectator.

According to Eustream, fully bypassing the Ukrainian route will lead to a gradual and inevitable decline of the Ukrainian transit system, which at a capacity exceeding 140 billion cubic metres annually, accounts for almost three times the capacity of the new Nord Stream.

“Therefore, in the form as announced, the extension of Nord Stream doesn’t increase but rather decreases Europe’s energy security and the volume of transport routes at its disposal,” Chuguryan said.

Furthermore, he added that construction of the new Nord Stream and subsequent re-routing of gas flows would create a situation in which almost the entire volume of Russian gas would be supplied to Europe via a single point in Germany, together with the Yamal pipeline. From there, it would need to be transported to its final point of consumption – namely, the countries of central, southern and southeastern Europe as well as Ukraine (via reverse flow).

“The gas infrastructure in Europe is not at all prepared for such transport in terms of capacity,” stated Chuguryan, adding that this poses a risk of some countries not having enough gas. “Simply put, Italy and Ukraine would compete together for gas flows from western Europe.”

Chuguryan further pointed out that some countries in south-eastern Europe, for example Romania, Bulgaria and Greece, are not even connected to western gas networks. If the Ukrainian route is disabled it will be impossible to deliver gas to those countries via Nord Stream.

“We are also emphasising that the Nord Stream II project plans to transport gas to a region in which current transport routes are used only up to 57 percent capacity,” said Chuguryan. “Thus, Eustream considers the concerns voiced by the European Commission as well as by the Slovak Prime Minister [Robert Fico] to be fully substantiated. We cannot envision support for the full bypass of the Ukrainian route.”

Endangering energy security

Šefčovič said that further discussion with the companies involved, Russia and Western European governments are needed and that this project would endanger the energy security of the EU.

“For the EU, it is of strategic importance to keep gas transit via Ukraine,” stated Šefčovič in an interview with the Hospodárske Noviny daily, adding that the target for the future should be an energy market liquid enough in order there are less geopolitics and more transparent commercial relations during negotiations over gas. “We would like to see that each EU member country has access to gas from at least three sources and that these supplies are secure, reliable and at fair prices.”

Šefčovič also said during his recent visit to Sofia that the deal between Gazprom and its European partners to expand the Nord Stream gas pipeline would have to comply with EU rules.

“Now there is a lot of discussion about the Nord Stream project ... all projects of this magnitude will have to comply with European legislation,” said Šefčovič, as quoted by Reuters during his visit to Bulgaria.

Energy analyst Karel Hirman told The Slovak Spectator that this question has not been resolved yet even in the case of Nord Stream I.

“Also because of this, Nord Stream I is currently filled only to two-thirds of its capacity,” Hirman told The Slovak Spectator.

Hirman noted that a final agreement about the extension of Nord Stream has not been reached yet and that the project South Stream, which was prepared to the same level, was scrapped in the end. Hirman also pointed out that compared with the first phase of Nord Stream in which the German cabinet led by then-Chancellor Gerhard Schröder was involved, Nord Stream II is not a project supported by a national government or the EU.

“With regards to the more and more complicated situation on the gas market in the EU, where supply highly exceeds demand and where demand and sale of gas has been falling over the last few years, gas companies have to increasingly face high competitive pressure and a shrinking gas market,” said Hirman. “Because of this, in their strategy these partners together with Gazprom consider Nord Stream II as one of the possibilities for remaining on the market.”

But Hirman stressed that for Gazprom this is also fulfilment of a political task from the Kremlin: to bypass Ukraine at any price and to reduce or halt transit of gas from Siberia to the EU via Ukraine.

Gas consumption in the EU decreases also because gas is still expensive, especially in comparison with the US.

“New, expensive gas pipelines will not help the reduction of its prices not only due to their high construction costs, but also for operation and gas transit,” said Hirman.

If built, Nord Stream II may significantly reduce gas transiting Slovakia via pipelines.

“But at least this potential decline can be partly eliminated, paradoxically, by transition of gas from Nord Stream I and II down to the south of Europe to Italy and the Balkans via the planned Eastring pipeline,” Hirman said, adding that this pipeline in its first phase is designed for gas transit from Germany and Benelux via Slovakia to countries further south.

“In any case Slovakia’s priority should be keeping transit of Siberian gas via the Ukrainian-Slovak corridor,” Hirman stated.

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