Russia to Launch Nord Stream Second Leg

Gazprom is set to launch on Tuesday the second leg of the Nord Stream gas pipeline from Russia to Europe, as a fall in demand means it may end up operating at just a fraction of its designed capacity.

The first leg of the pipeline, which runs along the Baltic Sea bed from the Russian city of Vyborg near the Finnish border to Greifswald on the coast of Germany, was launched in November 2011 and has an annual capacity of 27.5 billion cubic meters of gas.

The second leg of the pipeline, which is 775 miles (1,224 km) long and pumps natural gas from the Yuzhno-Russkoye gas field on Yamal Peninsula in northern Russia, will double this capacity to 55 billion cu m annually.

The pipeline’s core shareholders include Gazprom with 51 percent, Germany’s Wintershall Holding and E.ON Ruhrgas (15.5 percent each), France’s GDF Suez and the Netherlands’ Gasunie (nine percent each).

Before Nord Stream route was launched, Russia delivered natural gas to Western Europe via the pipeline-transit states of Belarus and Ukraine, with Ukraine accounting for two-thirds of these supplies.

Russian gas exports to Europe via a pipeline in Ukraine have been disrupted several times in recent years over pricing rows with Kiev. The most recent dispute in early 2009 left Europe freezing without Russian gas for nearly two weeks.

Nord Stream’s first leg allowed Russia to reduce gas supplies via the Ukrainian route and pump natural gas directly to Germany and other Western European countries.

In January-August 2012, Russian gas deliveries to Western Europe via Ukraine fell by 22.86 percent year-on-year to 54 billion cu m while gas supplies through the Nord Stream gas pipeline from November 2011 to October 1, 2012 totaled 8.7 billion cu m, Prime news agency reported.

The Nord Stream project, originally called the North European Gas Pipeline, was launched in 2005 to meet growing demand for natural gas in Europe. However, the 2008 global financial and economic meltdown and the current eurozone sovereign debt crisis have significantly reduced Europe’s demand for natural gas and even created surplus gas supplies to the European market.

In the meantime, Gazprom’s oil-linked natural gas pricing formula, which makes Russia’s natural gas more expensive than gas supplied by other exporters to the European market, makes it problematic for the Russian energy giant to fill the Nord Stream gas pipeline to capacity, experts polled by Deutsche Welle said.

In the first eleven months of Nord Stream’s operation, the pipe operated on average at 30-40 percent of capacity, pumping about 9 billion cu m, operator Nord Stream AG press secretary Jens Muller said.

The launch of Nord Stream’s second leg, increases the likelihood that the system will have unused capacity unless the supplier agrees to offer its product at a lower price, Deutsche Bank Research expert Josef Auer said.


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