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Gazprom wants to get rid of gas transit through Ukraine; it has to pay for it

Author : Christian Steiner

Donald Trump and Eastern European countries want to prevent the Nord Stream - 2 pipeline project
09:11, 16 July 2018

Read the original text at Neue Zürcher Zeitung.  

Reuters

The pipes are ready. Very soon, the first shovel of soil will be dug during the construction of the Nord Stream - 2 gas pipeline. But only American President Donald Trump can prevent the construction of a pipeline that would be transported from Siberian fields via St. Petersburg to German Greifswald. Trump spared no effort, criticizing the underwater pipe. As the president said during one of the business breakfasts to NATO partners, the pipeline risks making Germany “a captive of Russia.”

On the night of Thursday, he angrily wrote on Twitter: "Pipeline dollars to Russia are not acceptable!" But the words of the president, the most powerful man on earth, are only a small part of the overall criticism of the project. For many opponents, the pipeline has long been a thorn in the eye.

Related: Germany and Russia gas links: Trump is not only one to ask questions

The US and some EU countries are afraid that due to the new pipeline, Russia will get a monopoly on the transportation of natural gas and thus make Europe a captive. According to this logic, after the introduction of the new gas pipeline, all the restraining moments will disappear for Russian. Estonian Foreign Minister Sven Mikser also speaks in the same vein. In his opinion, Nord Stream 2 is not an economic project, but a geopolitical maneuver of the Kremlin, since the pipe poses a threat to the security of the Baltic states and violates the energy principles of the EU.

The EU and the US critics of the project argue their position primarily by considerations of security. In a March message, 39 US senators called on the president "to use all means" to resist the laying of the pipeline and impose sanctions against the operators and their international partners. According to the senators, the Kremlin has only one goal: using a new pipe to bypass Ukraine as a transit country and thereby jeopardize the fragile peace in this region.

Related: Ukraine, Russia, and EU to discuss gas transit in Berlin, - media

Currently, the Old World is mainly supplied with gas from Russia, the Netherlands, Norway, and the United Kingdom. According to experts, Europe annually consumes 480 billion cubic meters of gas, in the coming years it will be necessary to find a replacement for 120-140 billion cubic meters, as gas production in the Netherlands and the UK is falling. In addition, gas makes it possible to replace the nuclear and environmentally dirty coal energy.

Europe is thus becoming more dependent on the gas sources of other countries. From Gazprom's point of view, Nord Stream - 2 will partially solve the energy problem of Europe, supplying annually 55 billion cubic meters of gas. In addition, Russian pipeline gas is slightly cheaper than, for example, liquefied natural gas from the US or Qatar.

Related: Ukrainian oil and gas producers to expand gas extraction

Thanks to the new underwater pipeline, even more gas from Russia will flow through the Baltic Sea to Germany, the largest foreign market for Gazprom. World largest gas producer would pay 5 billion euros for this project. In addition, concerns from Germany, Austria, France, and the Netherlands give another 5 billion euros in loans, so taxpayers cannot shell out.

But Russia is going to build a new gas pipeline not only out of generosity and commercial considerations. Putin’s government has an absolutely clear purpose. The idea of the project was born a year after the start of the Ukrainian conflict. Today, Europe receives about a third of its gas from Russia. Of this quantity, almost half is transported through Ukraine. Russia pays big money for transportation - about 2 billion dollars every year.

Related: Siemens gas turbine is tested in Crimea

The Russian government wants to stop financial support for the enemy regime in Kyiv. Everything is going according to plan, since 2020 most of the gas for Europe will go not through Ukraine, but through the Nord stream – 2. Some EU countries, primarily Slovakia, will also lose revenue from gas transit. For Gazprom, the money saved on transit makes a cheap gas pipe attractive and economically attractive.

But a beautiful new world for Russia without irritating transit through Ukraine is not as attractive as it might seem. One participant in the project - Gazprom itself – would pay for independence from Ukraine. According to the Russian analyst and gas expert Mikhail Krutikhin, the world's largest gas producer will have to fork out.

Five billion that Gazprom spends on Nord Stream-2 are just a small fraction of the actual total costs. Most of them are allocated for Russia itself. After all, for the Baltic gas pipeline, new pipes must be laid from the fields on the Yamal to the coast. These costs are many times higher than the cost of the entire gas pipeline.

Related: Nord Stream 2 will destroy competition on European gas market, - Naftogaz

Construction firms, close to the Kremlin, and pipe manufacturers would benefit from it. These companies were given the right (often without any tenders) to lay thousands of kilometers of pipes. Gazprom has thus transformed into something similar to a self-service store for the president's friends. Krutikhin is not the only critic of the state giant. At the beginning of the year, one of the analysts of Sberbank pointed to the same problems in the strategy of the Gas Pipeline and even provided figures. According to his report, Gazprom must invest $ 17 billion in the deal in order to get rid of the payment of transit fees. The project of a new gas pipeline within 20 years will not bring profit to Gazprom, Sberbank wrote. The fact that the criticism came from a state-controlled bank, caused discontent in the leadership of Gazprom. The concern reacted harshly, Sberbank chief German Gref was forced to personally apologize for the report, the author was immediately dismissed.

But the project still brings some hopes. Gazprom's gas monopoly in Russia has staggered. Thanks to the development of an efficient infrastructure for liquefied natural gas (LNG), the construction of liquefied natural gas tankers, even for the Arctic regions, and the solution of Novatek's domestic competitor to export LNG, there is more room for competition in Russia. Rosneft also wants to snatch a piece of cake. The state oil giant headed by the all-powerful Igor Sechin wants to enter a profitable enterprise. Due to domestic competition, Gazprom will have to strictly adhere to competition rules.

Related: Ukraine-Russia gas dispute: Commercial court of London allows to freeze Gazprom's assets

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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