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Article / 19 June 2015 at 9:13 GMT

Russian knight makes daring gas thrust

Russia oil and gas expert
United Kingdom
  • Gazprom memorandum of understanding reopens Nord Stream extension option
  • Extension could double current Nord Stream to 110 billion cubic meters
  • Completion could neatly solve Russia's isolation from Europe
  • Pipeline might render Turkish extension redundant, cut Ukraine from equation


Could Russian gas be flowing to Europe via a Nord Stream extension? Photo: iStock

By Nadia Kazakova

In Russian, when you say that you have made a move with the knight (as in chess), it means that you have found a daring and unexpected solution to a perplexing problem.

Gazprom might have just made such a thrust.

On June 18 at the St. Petersburg Economic Forum, the Russian gas company signed a memorandum of understanding with E.on Ruhrgas, Shell and OMV for the construction of two more branches of the Nord Stream pipeline.

If the project does go ahead, it would add an extra 55 billion cubic meters to the existing Nord Stream pipeline (which already has 55 Bcm installed capacity). Potentially, it could make redundant the extension of the Turkish Stream to Europe (the Turkish Stream itself is likely to go ahead) and take over the bulk of the Ukrainian gas transit volumes, but not before 2022. 

Unlike the South Stream pipeline, the new consortium would not require European Union permission to build the pipeline. It would, however, require, at the very least, the political will to take/accommodate more Russian gas in the North of Europe and transport these volumes across the European gas networks.

Few might have seen it coming. The announcement about the construction of the new trans-Baltic pipeline, or rather the extension of the the Nord Stream, is both unexpected and logical. The extension project has been under discussion for some years. 

The current Nord Stream consortium, which completed the first two branches in 2011 and 2012, has published the Project Information Document (PID) for the extension in March 2013. The aim was to complete the obligatory environmental impact assessment and obtain permits within three years (by end 2015), start the construction in 2016 and complete the two branches by 2018.

In other words, the consortium would have required six years for the project to be complete.

Nord Stream extension map
Could the Nord Stream extension bring Gazprom
in from the cold? Source: 

The idea was to build two more branches of the Nord Stream pipeline, with the capacity of 55 Bcm. The configuration of the pipeline would replicate the existing Nord Stream, but would have new landfall sites both in Russia and in Germany. It would also have a different pipeline route corridor, but within a close proximity to the existing Nord Stream. 

The extension project was officially abandoned in January 2015, at least, it seems, by the existing consortium. It now has been picked up by both new companies (Shell, OMV) and the current Nord Stream shareholders (Gazprom, E.On Rurhgas). 

Assuming that the memorandum is worth more than the piece of paper it has been signed on (i.e. the companies are actually planning to go ahead with the venture rather than have signed the documents for various other reasons), it might take around three year to get required permits (from Russia, Germany, Finland, Sweden and Denmark) and then another three years to complete the construction. 

Presumably, the new consortium would also have a plan how to transport the gas across Europe. Currently, the existing Nord Stream pipeline is used at around 55% its capacity (based on 6-month average to April 2015) due to restrictions on gas transportation via the EU-regulated OPAL pipeline. Admittedly, it has been running at almost 76% in April 2015.

Monthly Nord Stream gas flow, billion cubic meters and capacity utilisation *, %
 Source: Note: * = based on the installed capacity

Aside from obvious political issues with the new offshore Baltic Sea pipeline, there are interesting political implications for other parts of Europe

The Russian energy minister Alexander Novak confirmed that the construction of the Turkish Stream pipeline would not be effected by the Nord Stream extension.

It is likely, however, that Gazprom would build only the new pipeline to Turkey (the first strand would have a capacity of 15.75 Bcm, to be completed by December 2016). The Turkish Stream would replace the volumes currently transited via Ukraine.

In addition, it would enable Gazprom not to write off multi-billion dollar investments, which it made into the Russian pipeline network expansion to the Black Sea.

If the Nord Stream extension is built, there seems to be little need for the Turkish Stream extension via Greece to Europe, which could dash any hopes for Russia's financial package to the country.

There are also implications for Ukraine. If the Nord Stream extension is being built (with the European political consent), Gazprom is likely to continue gas transit via Ukraine beyond January 2019, when the current gas transit contract expires. It would remove uncertainties around what happens to the transit flows in three years time.

Ukraine is likely to lose its role as a major transit route for the Russian gas in ten years time, but could at least have a diversified gas suppliers and affordable gas prices. 

From Gazprom's point of view, it might be offering Europe a rather elegant solution to a multi-layered problem. Politics, of cause, can intervene at any point, but there is a chance for Russia's Gazprom and Europe to play this chess game to a mutually satisfying draw.


Has Gazprom neatly played its way back in to the European gas supply game? Photo: iStock

— Edited by Martin O'Rourke

Nadia Kazakova is an expert on Russian gas and oil


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