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Nord Stream Wins Final Clearance

A Gazprom-led joint venture on Friday cleared the final hurdle to begin construction on Nord Stream, the $10 billion pipeline that will carry Russian gas to Europe and reduce the risk of supply disruptions.

A regional Finnish agency issued a permit deeming the pipeline environmentally safe for the Finnish part of the Baltic Sea that it will traverse, giving the project its last go-ahead, Nord Stream AG, the venture building the pipeline, said in a statement. The four other littoral states affected by the construction — Denmark, Sweden, Germany and Russia — have already given their blessing to the project over the past several months.

Nord Stream will begin laying pipes across the bottom of the sea on April 1 after the sea's ice cover, which extends 120 kilometers offshore and is currently 50 centimeters thick, melts away, said Sergei Serdyukov, the company's chief technical officer.

"We will start work on the day when people will laugh," he said in reference to April's Fool Day.

The first gas will flow in September next year, Prime Minister Vladimir Putin said in a meeting with Marcel Kramer, chief executive of the Netherlands' gas distribution company Gasunie, late Thursday. The company holds 9 percent in the joint venture, while Gazprom owns 51 percent and the remaining stock is split evenly between Germany's Wintershall and E.On Ruhrgas.

The 1,220-kilometer pipeline will be able to carry 27.5 billion cubic meters of gas a year. A second phase — to be completed in 2012 — will double the capacity to 55 bcm per year, or two-thirds of Germany's annual gas consumption. Nord Stream is designed to alleviate Russia's dependence on transit countries Ukraine and Belarus in view of repeated midwinter tugs of war that have disrupted European supplies.

Despite clearing the final hurdle after four years of talks, environmental studies and petitioning for permits, staffers sounded reserved once the deal was done.

"There's no time for celebration. The entire team is working very hard," Serdyukov said. "It just gives us satisfaction that we did everything right."

The pipeline project's chief executive, Matthias Warnig, marked the occasion by congratulating the venture's employees, Serdyukov said. Employees also congratulated one another, said Irina Vasilyeva, a Nord Stream spokeswoman.

"There's still a lot of work ahead,” she said. “We promised to bake a pudding. And we have yet to bake it."

Two barges will start laying pipes in the middle of Swedish waters and continue the work in various separate stretches of the route, scheduled to take into account bird nesting patterns and fish spawning seasons, seal reproduction and tourism, she said. Workers will ultimately connect these separate legs of the pipe, she said.

"We will not disturb nature in its sensitive moments," Vasilyeva said.

Putin said at the Gasunie meeting that the pipeline construction would end in May next year and that testing will take place over the summer months.

Gazprom already has contracts to supply more than 20 bcm of gas through the line, Nord Stream said.

The deadline for completing the pipeline has been pushed back at least twice from an initial estimate that it would start operating by the end of 2010. Additional studies to address the environmental concerns of the littoral states were the reason for the delays. Poland, which is another transit country for Russian gas, and Estonia protested the pipeline's construction, although it won't cross their waters.

The new route still makes sense to invest in, despite the current oversupply of gas on the European market, a glut that the International Energy Agency projected would last at least until 2015, said Julian Lee, a Russia analyst at the Center for Global Energy Studies in London.

"For Gazprom, the real motivation as much as anything else is to provide an alternative to shipping across Ukraine and Belarus," he said. "Geopolitically, it has as much rationale as before."

In addition, Europe currently has capacity restraints on imports of liquefied natural gas, or LNG, and will still have to rely on pipeline gas deliveries, he said. LNG is gas cooled to liquid for shipping by tankers.

If the gas glut continues to hurt sales when the pipeline goes into operation, Gazprom could use it to take some of its deliveries now traveling through Belarus and Ukraine, said Pavel Karpus, senior manager for oil and gas consulting at Deloitte in Moscow.

See also:

GDF Suez, Gazprom in Pipe Deal

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