Gazprom pipelines and export capacity

Газопроводы Газпрома и экспортные мощности

Gas pipelines of West Siberia

Газопроводы Западной Сибири

Export flows of Gazprom

Экспортные потоки

Spot, Gazprom, Brent

Цены на нефть и газ

End-use price of gas

Russia and USA

Daily gas production

Суточная добыча

Nord Stream Synchronization Problem

 Source: Nord Stream AG

The two-line Nord Stream project faces a serious synchronization problem. The first line of the new export project of Gazprom will be fed by the 917-km Gryazovets-Vyborg pipeline being built now. The second line is supposed to receive gas from the Shtokman gas field in the Barents Sea via the 1365-km Murmansk-Volkhov pipeline (aka Teriberka-Volkhov)scheduled to be commissioned in 2013.

According to Nord Stream AG, the second line of the project is due to be completed in 2012. It is clear that Shtokman will not start production in 2013. In my view, it is unlikely to be commissioned before the mid-2020s.

Without additional gas deliveries to Vyborg, Nord Stream can work at a maximum of 55% of its design capacity, which means the second line is not needed. Gazprom can solve the bottleneck at Vyborg by building another 510-km pipeline from Gryazovets to Volkhov. However, this asset will not be needed when the Teriberka-Volkhov pipeline gets operational.

Gazprom has to chose between laying an empty 1200-km pipe from Vyborg to Greifswald or building a temporary 510-km line from Gryazovets to Volkhov. From the financial standpoint, this is a choice between freezing $6 billion for several years starting from 2012 or $3 bn forever after the pipeline from Shtokman is commissioned. In any case, this is a no-win situation for Gazprom. For Nord Stream, it would be much better if Gazprom builds the temporary $3-billion line from Gryazovets. At 55% load, Nord Stream would be a total loss. As a matter of fact, it may be cheaper to abandon the plan of building the second line of Nord Stream.

Considering the current market situation, it looks very unlikely for Gazprom to sell any additional gas under the old pricing formula. Until the 2020s, the Russian gas monopoly is more likely to export minimum volumes of about 150 bcm/year allowed by the take-or-pay contracts. Europe will buy additional gas at the price below the cost of Russian gas delivered to the EU border. In this case, the project disapproval by the Swedish authorities will be commercially beneficial for Gazprom. On the other hand, the EU will be more secure with the financially healthy Gazprom.

Mikhail Korchemkin

November 4, 2009

Malvern, Pennsylvania, USA

Last modified: 12/07/14                    East European Gas Analysis 2006-2014                                           Email:
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