RUSSIA BOOSTING GAS EXPORT CAPACITY TO EUROPE

Russia’s Gazprom is moving rapidly to preempt potential competitors on European markets, far outpacing the European Union’s development of a supply-diversification strategy. Gazprom will soon complete the first trunk line of the Yamal-Europe gas pipeline and is set to embark on the North European gas pipeline project. The resulting increase in export volumes can boost Gazprom’s already dominant position to an impregnable one in Europe, enabling it to set price levels, and also to begin acquiring the internal transportation and distribution networks of European Union countries.

On July 18-19, Gazprom commissioned the third and fourth (out of five) compressor stations on the Polish section of the Yamal-Europe pipeline. According to Gazprom Vice-Chairman Alexander Ananenkov, speaking at the event, the company invested $1.75 billion to lay the 680-kilometer trunk line on Polish territory. The company is on track to complete the fifth compressor station there by December 2005. This trunk line is planned to reach the design capacity of 33 billion cubic meters annually from 2006 on.

Construction work on the Yamal-Europe pipeline’s Belarus section is running slightly behind (instead of slightly ahead) of the Polish section. The lag is partly attributable to chronic disputes between Gazprom and the Belarusian authorities over the lease of land tracts for pipeline and compressor station construction. This issue figured on the agenda of Presidents Vladimir Putin’s and Alexander Lukashenka’s meeting at Zavidovo near Moscow on July 20-21. Lukashenka made a promise (not his first) to facilitate leases on the land tracts for compressor stations in time to ensure the stations’ completion by December 2005. For his part, Putin pledged to increase (volume not specified) Russian gas supplies to Belarus for internal consumption in 2006, at the constant 2005 price specially discounted for Belarus, if the Yamal-Europe pipeline’s Belarus section is commissioned on schedule.

One compressor station has been completed thus far, and four more stations are under construction. The 575-kilometer Belarus section should reach its 33 billion cubic meters design capacity in 2006 a few months behind the Polish section.

With a total length of more than 4,000 kilometers, the Yamal-Europe pipeline is expected to become operational on its entire length by mid-2006. A second trunk line is planned to match the first one’s 33 billion cubic meters annual throughput capacity after 2010. Some 14 billion cubic meters have been earmarked for use in Poland, once both trunk lines are commissioned.

On July 21, the Leningrad oblast’s authorities announced that preparations are well advanced for a start to construction work on the North European gas pipeline project on the oblast’s territory. The authorities of Vologda oblast had on June 30 made a similar announcement. The pipeline is planned to run for 917 kilometers on Russian territory on land to Vyborg, and from there directly to Greifswald in Germany along the Baltic seabed. Its projected throughput capacity is 27 billion cubic meters annually, and the seemingly optimistic target date for commissioning its first stage is 2010. A second stage, adding another 27 billion cubic meters, is also planned.

Gazprom has partnered with the Wingas unit of Germany’s BASF concern as minority shareholder in the project. Germany’s Ruhrgas also seeks to become a minority shareholder. Whatever the consortium’s ultimate shape, Gazprom has locked in a minimum 50% plus one of the shares for itself. It is also in the process of acquiring 50% minus one share of Wingas, which now controls a network of gas distribution pipelines in Germany and other European countries. Gazprom and Wingas will jointly develop the Yuzhno-Russkoye gas deposits in western Siberia, with 700 billion cubic meters in estimated recoverable reserves.

At present, Gazprom relies on Ukraine to carry the lion’s share of Russian gas exports to Europe. In 2005, Gazprom expects to deliver 145 billion cubic meters of gas to European non-CIS countries. Of that volume, Ukraine is handling 128 billion cubic meters this year. The expected commissioning of the Yamal-Europe pipeline in 2006 and the planned North European pipeline will substantially reduce Russia’s reliance on Ukraine, and correspondingly Ukraine’s counter-leverage as the key transit country.

(Interfax, June 30, July 6, 11, 19, 21)