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Export pipelines
Nord Stream and South Stream
Every winter during the new
round of gas conflict with Ukraine, some experts note that for secure supplies of
Russian gas, the EU needs the Nord Stream and South Stream
projects to be completed as soon as possible. A simple math can prove that this statement is
incorrect.
The following table shows annual
and daily exports of Russian gas to Europe and Turkey in 2020, assuming the
Nord Stream and South stream projects are completed. The table presents two
scenarios: UKR - Russia's conflict with Ukraine, and BEL/POL - conflict with
Belarus or Poland. The scenarios assume minimization of the transit flow
through the conflicting country.
Russian
Gas Exports to Europe and Turkey in 2020: Annual and Daily Flows
|
Export routes |
UKR |
BEL/POL |
UKR |
BEL/POL |
Gas flows, billion cub. m/year:
|
(1) |
(1) |
(2) |
(2) |
Ukraine
|
83
|
118 |
53 |
88 |
Belarus
|
35
|
- |
35 |
- |
|
Finland |
6 |
6 |
6 |
6 |
|
Blue
Stream |
16 |
16 |
16 |
16 |
|
Nord
Stream |
55 |
55 |
55 |
55 |
|
South
Stream |
30 |
30 |
30 |
30 |
|
Russian exports
total: |
225 |
225 |
195 |
195 |
Gas flows, million cub. m/day (January):
|
|
|
|
|
Ukraine
|
300
|
428 |
200 |
328 |
Belarus
|
128
|
- |
128 |
- |
|
Finland |
18 |
18 |
18 |
18 |
|
Blue
Stream |
53 |
53 |
53 |
53 |
|
Nord
Stream |
176 |
176 |
176 |
176 |
|
South
Stream |
105 |
105 |
105 |
105 |
|
Russian exports
total: |
780 |
780 |
680 |
680 |
|
Ukrainian daily
consumption (3) |
310 |
310 |
310 |
310 |
|
Transit to Europe
via Ukraine |
300 |
428 |
200 |
328 |
|
Ukrainian gas
production |
-59 |
-59 |
-59 |
-59 |
|
Ukrainian storage
withdrawal |
-220 |
-158 |
-220 |
-58 |
|
Balance: |
331 |
521 |
231 |
521 |
|
Supplies from
Russia (4) |
310 |
521 |
207 |
521 |
|
Ukrainian
siphoning |
21 |
- |
24 |
- |
UKR
= conflict with Ukraine; BEL/POL = conflict with Belarus or Poland.
(1) Maximum export volume
assumed by Gazprom's program of Russia's gas sector development to 2030.
(2) Realistic export
volume under the new energy policy of the EU.
(3) Average daily
consumption in January in the last ten years.
(4) In UKR case,
including fuel gas of compressor stations needed for transit services.
Key
Conclusions
-
In case of
completion of the export projects of Gazprom, Ukraine will
remain the most important gas transit partner of Russia. If all
bypassing pipelines are fully loaded in case of another
Russian-Ukrainian gas dispute in the future, Gazprom would still
need to ship about 300 million cubic meters (mmcm) of gas daily
to Europe via Ukraine. This is equal to the daily transit flow
of early January 2009. Ukraine would siphon over 20 mmcm/day of
transit gas in the first week of the conflict. Under the
realistic scenario, the Ukrainian transit volume drops to 200
mmcm/day, but the siphoning increases slightly.
-
To provide secure
supplies of gas to Europe, Gazprom would still need to use the
underground gas storage facilities (UGSF) of Ukraine. Gazprom
would have to have the Ukrainian UGSFs fully loaded - in case of
a new conflict with Belarus or Poland, Gazprom would need to
withdraw about 160 mmcm of gas daily.
-
Currently
Ukraine has no incentives for buying and storing gas during
summer moths. The price of $418-450/mcm offered by Gazprom
is much higher than the average price of $385/mcm of
European exports of Gazprom in the 1st quarter of 2009 (our
estimation). To create an incentive for Naftogaz,
Gazprom should offer the Ukrainian company a substantial
discount and an option to pay for gas after it is sold to
consumers.
-
Naftogaz may
consider buying gas from Gazprom in accordance with the
seasonal demand of Ukrainian consumers - more in winter and
less in summer. Then, to keep the European exports at the
current level of 150-160 bcm/year without using the
Ukrainian UGSFs, Gazprom would need to build two new gas
pipelines from West Siberia to the EU border (combined
length of 9,000 km) and to commission new gas fields
producing 200 mmcm/day (twice the capacity of the
Yuzhno-Russkoe field). This construction would require over
$60 billion of investment costs. Operating expenses of
Gazprom would increase by $5-6 billion a year. Under the
current crisis, this policy would lead to an inevitable
bankruptcy of the Russian gas monopoly.
-
The
Nord Stream pipeline would allow Gazprom to turn off gas supplies to
Belarus and Poland without affecting exports to other countries.
Therefore, the worries of the Polish authorities about the
negative effect of the Nord Stream project on the security of gas supply to Poland are well-grounded. There
are no doubts that having a bypass pipeline in case of a
political dispute, Russia would turn off gas flow to Poland.
-
In case of conflict with Bulgaria,
Gazprom would be able to cut the gas flow via the South Stream
pipeline without reducing exports to other countries.
-
In case of Russia's dispute with
Germany, Gazprom would be able to turn off the Nord Stream
pipeline without limiting supplies to other European countries.
-
The
Nord Stream and South Stream
pipelines are designed as bypass pipelines without increasing
Russian exports or improving the security of gas supply to
Europe. On the contrary, these projects are designed to
reduce the security of supply to Belarus and the EU member
states of Germany, Poland, Hungary, Romania, Bulgaria and
Greece. Russia will be able to turn off the gas flow to any of
these countries without decreasing other exports.
-
The export projects of Gazprom can
not change the energy security of
Ukraine, Slovakia, Czech Republic and Austria.
-
Under the new energy policy of the
EU, Gazprom does not need new export pipelines.
-
The existing pipelines can
supply to Europe and Turkey about 200 bcm of Russian gas a
year. The EU plans to reduce its original gas import
targets, so Russian gas exports to Europe are likely to be
lower than the volumes planned by Gazprom.
-
Shipment of gas via the South
Stream pipeline costs much more than the transit through
Ukraine. Transportation of gas via the Nord Stream route is
more expensive than the transit through Belarus and Poland
(see comment of November 25, 2008).
On top of the unnecessary investment costs, the construction
of new export pipelines leads to considerable growth of
operating expenses of Gazprom.
-
The excessive projects of
Gazprom have to be paid by gas consumers of Russia, which
would extend the period of the economic crisis in the
country. During the previous crisis in 1998-1999, the
nominal price of gas in rubles was frozen, while the real
price has dropped by three-quarters. Additionally, the
Russian government has devalued the nominal debt of Russian
gas consumers to Gazprom by 40% (the real debt has dropped
by over 80%). Gazprom has suffered losses for two years, but
the low domestic price of gas has helped all other
businesses to recover faster.
-
Construction of bypassing pipelines
for political purposes is appropriate for a "Ministry for
Foreign Energy relations", but not for a company that claims the
priority of profit maximization.
-
All parties, especially the Russian
gas consumers, would benefit from the normal relations of
Gazprom with neighboring countries based on direct contracts
without intermediaries, transparent market prices, as well as
transparent market tariffs for gas transit and storage.
Mikhail Korchemkin
January 5, 2009
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