Baltic Pipeline Faces a Minefield of Problems

The Moscow Times

Baltic Pipeline Faces a Minefield of Problems

A mine on the Baltic Sea shelf being cleared by the Estonian Navy last year.

When a Gazprom-led consortium begins laying the foundation for a major new pipeline to pump Russian gas under the Baltic Sea directly to Western Europe, it is likely to run into problems — thousands of them.

The North European Gas Pipeline, or Nord Stream, is due to snake along the seabed over an area covered with hundreds of thousands of unexploded mines and munitions dating as far back as World War I.

Officials and environmental groups in several of the countries that border the Baltic say construction of the 1,200-kilometer pipeline threatens to disturb the resting places of the deadly weapons, which include free-floating mines and decades-old canisters of mustard gas.

“There are major questions that have not yet been fully addressed by the consortium,” Björn Skala, Sweden’s ambassador for small arms, said by telephone from Stockholm. “The proof [of environmental safety] is not yet there.”

Concerns over the Nord Stream pipeline have begun to split Europe, potentially pitting beneficiaries like Germany against those countries that say they will lose out from the project, namely new European Union members Poland and the Baltic states.

On Friday, the head of the European Investment Bank, Philippe Maystadt, said he would block loans to the project until all EU members had agreed to back the pipeline.

There is clear opposition from several member states,” Maystadt said. “As long as there is this opposition, we will be unable to finance the project.” The EIB, the EU’s soft-loan lending arm, was considering granting loans to cover up to 30 percent of the $6 billion project’s costs.

If the first branch of the pipeline, running from the northern Russian port of Vyborg to Greifswald in Germany, comes online as planned in 2010, Europe would no longer be a casualty in Russia’s pricing spats with countries like Ukraine or Belarus, through whose territory pipelines currently run.

Polish concerns center on historical fears as much as present-day worries that with a major pipeline bypassing its territory, its clout in convincing Europe to recognize fears over Russia’s energy muscle could fade away.

Gazprom holds a 51 percent stake in the consortium, which was formally named Nord Stream last year. Germany’s E.On and Wintershall, a wholly owned subsidiary of BASF, currently hold 24.5 percent each, but are each due to hand over 4.5 percent in the consortium to Dutch Gasunie under a deal inked last year.

After a Jan. 21 meeting with German Chancellor Angela Merkel, President Vladimir Putin said pipelines that deliver oil and gas directly to customers were key to ensuring Russia’s reliability as an energy supplier.

Polish Defense Minister Radoslaw Sikorski last year likened the project to the secret pact made between the Soviet Union and Nazi Germany at the start of World War II to divide up Poland.

The country had hoped that instead of choosing the Baltic route, Gazprom would expand the Yamal-Europe pipeline that currently runs across its territory. To push their dissatisfaction at being left out, Poland and the Baltic states may now try to beat Russia at its own game, analysts said.

“These concerns over munitions are just politics,” said Lev Fyodorov, the head of the Union for Chemical Safety in Moscow. “There are no scientific or ecological questions here.”

That argument is eerily reminiscent of the one that the West leveled at the Kremlin last year, when steadily building pressure by environmental authorities was widely taken as a means of pushing Royal Dutch Shell and its Japanese partners into selling a controlling stake in Sakhalin-2 to Gazprom.

Shell, Mitsui and Mitsubishi agreed to hand over 51 percent of Sakhalin-2 to the state-run gas giant in December, but attempts by Poland and the Baltic countries will not be as successful, analysts said.

“The stark reality is that the Germans are dependent on Russian gas and will become more dependent in the medium term,” said Chris Weafer, chief strategist at Alfa Bank. “They need the gas from this pipeline.”

The most the Poles could hope for is causing minor irritations, like increased costs for the $6 billion project, he said.

EU Energy Commissioner Andris Piebalgs already warned last week that the 2010 start date was “optimistic.”

Yet Gerhard Schröder, who controversially took the job of chairman of the Nord Stream shareholders’ committee shortly after stepping down as German chancellor in 2005, said last week that he expected the project to stay on track.

“We plan to complete this project on time,” Schröder said after meeting Piebalgs and other EU officials. “I believe this project is completely essential as far as gas supply security goes, not only for Germany but also for Europe.”

Europe depends on Gazprom for 25 percent of its gas imports, a number due to rise as consumption on the continent grows over the next decade. Yet the dependence goes both ways, with Gazprom counting on Europe for the bulk of its revenues.

Of Gazprom’s record $39 billion in export sales last year, $37.2 billion came from the 156 billion cubic meters Gazprom exported to countries outside the former Soviet Union.

The Nord Stream pipeline is due to give Gazprom an extra export capacity of 27.5 bcm per year and that amount is set to double by 2012, when a second arm is planned to come online.

With environmental concerns beginning to top the agenda of U.S. and European leaders alike, the complaints of the countries bordering the Baltic could get a hearing.

On Friday, officials from countries whose ecologies could potentially be affected by the Nord Stream pipeline are due to meet in Helsinki to discuss the consortium’s preliminary environmental study.

Nord Stream insists it has carried out a thorough study of the munitions’ location and will take care to avoid the sites where they lie. Around 40,000 tons of chemical munitions are estimated to have been dumped in the sea in 1947, according to the Helsinki Commission, an intergovernmental group that monitors the Baltic. Skala, the Swedish ambassador, said a further 100,000 mines are estimated to litter its shallow waters.

“In comparison with lots of other infrastructure projects, this one will have a more or less temporary impact,” said Jens Muller, spokesman for the Nord Stream consortium based in Zug, Switzerland.

The consortium is due to submit an environmental impact assessment, or EIA, this summer for approval by nearly a dozen countries. Denmark, Finland, Germany, Russia and Sweden, as well as Estonia, Latvia, Lithuania and Poland, must greenlight the project before it can move to the construction stage.

In December, the foreign ministers of Estonia, Finland, Iceland, Latvia, Lithuania, Norway, Poland and Sweden signed a joint document calling for an independent assessment by EU environmental authorities.

“The most important thing is that we haven’t seen an EIA yet, but the routing has been decided,” said Lasse Gustavvson, director of the World Wildlife Foundation’s Stockholm-based Baltic EcoRegion Program. “If you’re deciding on routing without knowing the landscape, this is not the best way to be careful, to put it simply.”

By Miriam Elder
Staff Writer

The Moscow Times

Thursday, February 15, 2007

http://www.themoscowtimes.com/stories/2007/02/15/002.html.

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