Monday, March 22, 2010

Nord Stream Moves Forward

Below is a guest post from IISS-US intern Jonah Friedman.  I think he lays out the political and economic importance of the Nord Stream pipeline.  It will be interesting to see if this progress will push forward Nabucco as well.  -Andrew 

The Nord Stream natural gas pipeline received a multi-billion dollar funding package from a group of banks this week. These funds will allow the consortium of partner companies (Gazprom, BASF SE/Wintershall Holding GmbH, E.ON Ruhrgas, and Gasunie) to begin the first stage in the pipeline’s construction in April. The controversial project is intended to be complete by 2012 and will eventually supply some 55 billion cubic meters of gas to Europe per year. Natural gas is cleaner than coal or oil, and will constitute a growing share of Europe’s energy consumption as it strives to limit its contribution to climate change. Nord Stream thus plays a role in helping Europe meet its carbon emissions reduction targets.

This is a major step forward for Nord Stream, which in recent years has been hamstrung and delayed by the need to secure the approval of various Baltic countries, as well as by environmental concerns. These latter obstacles were often seen as smokescreens for some states to hide deeper political and military fears. Sweden had been particularly concerned that the pipeline might pose a threat to that country’s security – either by serving as a platform for Russian intelligence-gathering efforts, or because it could be used a pretext for Russian military intervention in the Baltic in order to defend the pipeline from terrorist attacks and the like.

Moreover, Nord Stream is being portrayed as a nightmare for some of the European Union’s newest members. The Baltic states and Poland face the prospect of being completely bypassed – both physically, and in terms of Russia-EU energy relations. These states have a particular interest in preventing the construction of Nord Stream, given than the pipeline is meant to remove transit states such as them from the equation. Suggestions that these states have used environmental objections to mask their true motivations are therefore not surprising.

Although the project may now move forward more smoothly than it had in the past, new difficulties may lie ahead. Exploitation of Russia’s Shtokman gas field, which is meant to be one of Nord Stream’s sources, has been delayed. Gazprom, announced in February that the opening of the field would be further postponed by three years, and some doubt whether it will ever open. This leaves the future of the project – and the composition of Europe’s future energy supply – still somewhat in doubt.

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