RUSSO-GERMAN GAS PACT IN THE BALTICS

On September 8 in Berlin, top executives of Russia’s Gazprom and Germany’s BASF and E.ON companies signed the framework agreement on the North European Gas Pipeline (NEGP) project. President Vladimir Putin and Chancellor Gerhard Schroeder witnessed the ceremony, as they had the signing of the memorandum of intent at the Hanover Trade Fair in April.

Although the German government insists that the project is strictly of a business nature, Schroeder has strongly promoted it politically as part of the Russo-German special relationship. For its part, the Kremlin clearly regards the project as a component of its strategy to leverage energy supplies into political influence in Europe’s affairs. The choice of an offshore route to Germany, bypassing the Baltic states and Poland, also reflects Moscow’s wedge-driving tactics, dealing with old EU member countries on issues of concern to new EU countries over their heads. On the NEGP as on some other issues, the German side seems either oblivious or reconciled to Moscow’s political objectives.

The pipeline is to run on the bottom of the Baltic Sea from Vyborg near St. Petersburg to the vicinity of Greifswald in Germany, a distance of some 1,200 kilometers. It is planned to be commissioned in 2010, initially consisting of a single pipeline with a throughput capacity of 27 billion cubic meters of gas annually. The project envisages laying a second pipeline parallel to the first, doubling the annual capacity to 55 billion cubic meters annually. Investment in the twin-pipeline project is estimated at more than €4 billion. Extension branches to Finland and Sweden are also envisaged, and even extensions to the Netherlands and Britain are advertised as possible in a third stage, which seems speculative at present.

The Russian and German partners have agreed to set up the NEGP Company as a joint venture, with Gazprom holding 51% and BASF and E.ON each 24.5% of the shares. Should other companies join the project, they could only acquire portions of the German companies’ shares, not Gazprom’s.

The NEGP is to pump Siberian gas into the pipeline networks of the Wingas and Ruhrgas companies, which are the gas marketing subsidiaries of BASF and E.ON, respectively. Wingas and Ruhrgas control and manage extensive gas distribution systems in Germany and adjacent European countries. As part of the overall deal, Gazprom has the option to raise its 35% interest in Wingas to a higher level, and to acquire a 25% interest in Ruhrgas. Such moves are in line with Gazprom’s strategy to obtain shared control of national distribution systems in order to limit or even bar the access of other suppliers to these markets, thus maximizing dependence on Russian gas.

The Yuzhno-Russkoye field, not far from the giant Urengoy field in western Siberia’s Tyumen basin, is the upstream source of gas for the NEGP. Yuzhno-Russkoye’s reserves are estimated at 700 to 800 billion cubic meters of gas, and its output is projected at 25 billion cubic meters annually at full-scale production from 2010 onward. The field is being developed as a joint venture by Gazprom and the BASF subsidiary Wintershall, with E.ON set to join as well.

The Baltic states and Poland have proposed the Amber Project for an overland pipeline through their territories from Russia to Germany, and requested the European Union to support this in preference to the seabed option. An overland pipeline would cost approximately 30% less to build, and is far better suited for containing the impact of accidents, which could turn into catastrophes if they occur on the seabed. The bypass pipeline will also deprive the Baltic States and Poland of the transit revenue they would have earned from an overland pipeline.

The Amber Project’s overland pipeline would have advanced the EU’s goal of an integrated gas market by linking the new member countries with the “old” EU; whereas the pipeline bypassing the Baltic States and Poland would cut them off from the EU gas market, and could turn Germany into a Gazprom-controlled market. Such fragmentation of the EU market would enable Moscow to play off some customer countries against others, and would leave the Baltic states and Poland exposed to Russian manipulation with gas supplies as a political instrument.

The German government’s enthusiastic political support for this project is profoundly unsettling to Poland and the Baltic states. Berlin is dealing directly with Moscow over the heads of these countries, and indeed over the collective head of the EU, which now seems reconciled to the fait accompli. Germany and Russia have also ignored the Council of Baltic Sea Countries’ remit on energy cooperation and ecological protection.

Moscow and Berlin have held the initiative at every stage of development of the NEGP project, while the EU lacks a workable common policy on external energy supplies. Norway, a possible alternative source of energy supply to Poland and the Baltic states, is not an EU member. For their part, the Baltic states and Poland paid only intermittent attention to the Russian-German initiative, and only submitted their Amber Project after the NEGP had already acquired strong political momentum.

(BNS, ELTA, September 8-11, 13; www.eon.com, www.basf.com, September 8; see EDM, April 13, July 22, September 12)