SCHROEDER-PUTIN GAS DEAL UNDERCUTS BOTH NEW AND OLD EU MEMBER COUNTRIES

Opening the Hanover Trade Fair on April 11, Russian President Vladimir Putin and German Chancellor Gerhard Schroeder announced agreement on a project to deliver Russian gas directly to Germany by a pipeline under the Baltic Sea. The two leaders had strongly encouraged the respective gas companies to go ahead with this project. The Russo-German choice of an undersea route is at least in part politically motivated. It bypasses the Baltic states and Poland, despite their objections, and ignores EU policy as well.

Chairmen Alexei Miller of Gazprom and Juergen Hambrecht of BASF — whose energy division Wintershall is partnering with Gazprom in this project — outlined the terms of their memorandum of understanding in a joint news conference at the opening event. The North European Gas Pipeline (NEGP) is to run from Vyborg (near St. Petersburg) to Greifswald on the northeastern coast of Germany, and it will add an overland link with the German pipeline system. Gazprom will hold 51% and Wintershall 49% of the shares in NEGP. The line’s throughput capacity is projected at 20 to 30 billion cubic meters annually, and its overall cost from the Russian mainland is estimated at $3 billion to $5 billion, including $2 billion for the Baltic seabed section. Construction work is expected to start in late 2005 and be completed in 2010.

From the EU’s perspective, an overland pipeline across the Baltic states and Poland to Germany would clearly reduce political and technical risks to old EU member countries downstream. It would also increase the volume of gas available in the new EU member countries while enabling these to earn transit revenue. The undersea pipeline, however, would negate those potential advantages, adding instead to Gazprom’s and the Kremlin’s economic and political leverage on old and new EU member countries.

Under the same agreement, the Wintershall-Gazprom joint venture for gas marketing and distribution in Germany and other European countries, Wingas, is being reconfigured. Effective this year, Gazprom is raising its stake in Wingas from 35% to 50% minus one share. The move is characteristic of Gazprom’s strategy to preempt access to markets through control of national distribution systems. This enables Gazprom to limit or bar the access of other suppliers to these markets, thus maximizing dependence on Russian gas. The company has used this strategy successfully in Central and East European countries. Germany, whose dependence on Russian gas is by far the highest in Western Europe, now risks being locked into that situation.

The NEGP is to carry gas from the Yuzhno-Russkoye field, situated in Tyumen oblast’s Yamal-Nenetsk district, not far from the giant Urengoy gas field. Yuzhno-Russkoye’s reserves are estimated at 800 billion cubic meters of gas, and investment is projected at $1 billion. Yuzhno-Russkoye is due to be developed by a Gazprom-Wintershall joint venture, in which Wintershall will now increase its stake to 49% while Gazprom’s decreases to 51%. The reconfiguration reflects Gazprom’s shortage of investment funds.

Within the Urengoy complex, one field is being developed by the AchimGaz parity venture of Gazprom and Wintershall at a cost of $700 million in investments allocated thus far. AchimGaz is due to start commercial production in 2006, expecting to extract approximately 200 billion cubic meters of gas and some 40 million tons gas condensate over a 40-year period. This field may also become a source of gas for the NEGP via the Baltic seabed.

The Baltic states and Poland have appealed to Germany and the EU to route this pipeline overland on their territories — a proposal known as the Amber Project — in preference to the seabed. On March 22-23, the prime ministers of these countries wrote a joint letter to the European Commission and spoke up at a EU summit in Brussels, pointing out that the overland route would be consistent with the EU’s supply diversification policy, reduce security risks, and advance the goal of an integrated gas market of the EU. However, the German Chancellor’s Office (which drives Germany’s policy toward Russia) has chosen a go-it-alone course for Germany on this matter. It will reach separate deals with Russia, break ranks with EU policy, undercut several new EU member countries, and also complicate Ukraine’s bargaining position as a transit country for Russian gas.

(Interfax, April 11; ELTA, BNS, March 23)