The Baltic Sea pipeline goes online as conflicts are settled
“Nord Stream” will be an essential building block for the European energy supply
International disputes have been overcome
Next year, the second line of the 1,224 km long Baltic Sea pipeline will be installed and brought online. At the Energy Breakfast, Matthias Warnig, managing director of Nord Stream AG and former German Minister of Economics Michael Glos emphasized how the pipeline will drastically improve the EU’s energy supply.
Warnig was lauded by the participants for the successful agreement between the pipeline operator and the Scandinavian and Central and Eastern European countries who initially opposed the project. Representatives of the federal government, various energy firms, and banks asked critical questions regarding the pipeline’s cost-benefit ratio. In this context, new technologies used to extract shale gas, which could reduce overall EU gas imports, were discussed.
The round table renewed calls to fulfill environmental specifications for building the pipeline. Even before building began, 100 million euros were invested to investigate potential environmental effects. 40 million euros will be made available for environmental monitoring to identify any future consequences of the pipeline.
The shareholders of Nord Stream AG are the Russian energy firm Gazprom (51 percent), German firms Wintershall and E.ON (15.5 percent each), as well as Dutch firms Gasunie and France’s GDF Suez (9 percent each). The partners had to raise 30 percent of the total costs (7.5 billion euros) from their own capital before construction even began, and Gazprom had to guarantee gas purchases for 15 years.
The need for natural gas imports has risen
Following the German government’s decision to phase out nuclear power, even experts have had a hard time estimating how Germany’s energy mix will look in the future. Energy firms E.ON and RWE have already lost 40 percent of their current assets and are faced with difficult restructuring. Gazprom is interested in acquiring shares in both companies. The federal government has above all forced an expansion of regenerative energy sources. This is mandated by its ambitious climate change goals. However, there is also the danger of falling in to a subsidy mentality, which was noted during the discussion.
In contrast, some pointed to the fact that Nord Stream is being built at exactly the right time. According to the International Energy Agency, German demand for natural gas imports will increase to 200 billion cubic meters by 2025 due to a decrease in domestic production and increased consumption. Alternatives such as liquefied natural gas or shale gas do not have a bright future in Europe due to challenges in delivery and transport.
Dependencies in the Russian-European gas business are thus the reverse of what is often assumed: Russia only accounts for 26 percent of the EU’s gas supply. With 153 billion cubic meters, the EU makes up 80 percent of the entire volume of Russian gas deliveries.
Ukraine loses its transit monopoly
The round table also turned its attention to Ukraine’s role. In 2004, a trilateral German-Ukrainian-Russian gas consortium was established to deal with Europe’s energy supply. But the organization broke down after Ukraine made it clear that it was not interested in selling its pipeline system. And thus arose the idea for a Baltic Sea pipeline.
Ukraine has yet to decisively improve its position as an energy transit country. Necessary improvements to its pipelines will cost five billion euros. Indeed, Nord Stream cannot replace the Ukrainian pipelines, but it does offer Europe an additional stable supply. Ukraine will therefore lose its previous transit monopoly.
A bridge to the age of alternative energy
Nord Stream has thus far fulfilled all expectations. But the original base price for gas is no longer tenable, as the European market is saturated. The European Union will push Russia to allow a price reduction and to decouple gas prices from oil prices in order to make trading more transparent.
The group was in agreement that natural gas would remain a “bridge technology” for Europe’s energy supply until alternative energy sources break through. At the moment, Russian gas will at least replace deliveries from Libya that have been halted after the country’s recent revolution.