PREVIEW: Much-criticized Baltic pipeline to begin pumping gas

By Jean-Baptiste Piggin Nov 7, 2011, 14:30 GMT

Berlin - The Nord Stream gas pipeline, which alters the European geopolitical balance, will begin pumping Siberian natural gas to the German coast on Tuesday, when national leaders turn on the tap.

The 1.2-metre-diameter steel pipe runs for 1,224 kilometres along the bed of the Baltic Sea, bypassing an existing network of overland pipes running through Ukraine and Belarus.

Fears of instability in both those transit nations, as well as repeated midwinter switch-offs during Kiev's money squabbles with Russia, convinced the western Europeans that the underwater bypass was in their best interests.

But Warsaw criticized the pipeline project when it was agreed in 2005, worrying that Poland would be a loser. For its own gas needs, Poland must rely on the older overland pipes.

Other critics have expressed concern at the near-monopoly of the Russian state gas company Gazprom, which controls the pipeline.

Moscow is a clear winner, now that the pipeline is finally going into operation.

European gas companies are the junior partners in a consortium that raised 7.4 billion euros (10.1 billion dollars) for the new connection, including costs to address environmentalist concerns about threats to seabed animals.

It took a year and a half to lay the first pipe, which will go into operation Tuesday. Work is well advanced on a second pipe running alongside it.

Russia held its own ceremony in September when it began filling the first pipe with gas, a procedure that takes weeks.

Russian President Dmitry Medvedev and German Chancellor Angela Merkel are to ceremonially turn on the tap at Lubmin on Germany's Baltic coast for the gas to flow into Germany. The site used to be occupied by communist-era nuclear power reactors.

French Prime Minister Francois Fillon and Dutch Prime Minister Mark Rutte will be among the guests. Gas companies from their nations are Nord Stream shareholders. The gas will be distributed westwards by overland pipelines through Germany.

Western Europe relies on piped gas to heat homes and factories. Some comes from wells under the North Sea, but Russia is the largest single supplier. Gas pumped in summertime is pressed into rock formations in Europe, to be used in winter when demand is high.

The European Union is encouraging alternative supplies to be piped via Turkey for fear that Russia may use its dominant position to keep prices high, but proposals for Germany to import gas by ship on a large scale have made little progress.

The EU has at the same time opened a legal investigation into claims that Gazprom had abused its dominant position.

The Nord Stream project is closely identified with one man, Gerhard Schroeder, who was German chancellor until 2005, when his Social Democrats lost power and he moved into a politically charged job as head of the consortium.

Once completed next year, the two pipes will be able to transport up to 55 billion cubic metres of gas westwards to Europe every year - enough to supply 26 million households, Nord Stream executives say.

So far, about 800 kilometres of the second pipe have been laid.

The gas is being extracted from the Yuzhno-Russkoye gas field in Siberia, one of the world's biggest, with estimated reserves of 1 billion cubic metres in the ground.

Claudia Kemfert, an economist at thinktank DIW, has predicted that gas would gain a bigger share in the energy market, with Germany set to close all of its nuclear power stations by 2022.

It may take decades before Germany accomplishes its vision of obtaining most energy from renewable energy - through wind and sun - as well as insulating buildings so well that they need little energy to stay warm in the cold winter months.

The Paris-based International Energy Agency (IEA) believes EU gas imports - which reached 320 billion cubic metres in 2008 - will rise beyond 500 billion cubic metres annually by 2030.

But German customers have been disgruntled at Gazprom's pricing practice, which keeps the gas price in step with world oil prices, which are heading higher, rather than with spot gas prices on the open market, which have tended to rise more gradually.

'The international gas market has significantly eased and become more flexible in the past two years,' Kempert said.

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