In northwest Siberia, Russia’s flagship gas project defies pipeline politics

Rarely has the construction of a gas pipeline in Europe caused such a heated dispute as Nord Stream 2. EURACTIV went to the source to explore the economic, political, legal and societal dimensions of Russia’s controversial pipeline project.

Roughly 2,200 km from Moscow, in northwestern Siberia far above the Arctic Circle, an autonomous district stretches over the Russian Yamal Peninsula. It’s bigger than Texas and has 32 natural gas fields.

Estimated gas reserves exceed 16.7 trillion cubic metres, which could allegedly be “enough for the next 100 years”, a European gas expert told EURACTIV on the ground.

One of the largest explored fields in the region, Bovanenkovo Gas Field, is estimated to have 4.9 trillion cubic metres in gas reserves, according to Russia’s state company Gazprom. It is meant to feed the controversial Nord Stream 2 pipeline, Russia’s multi-billion energy link to Europe.

According to unofficial calculations, the gas takes three or four days to reach Germany’s energy hub in Greifswald.

Between commerce and geopolitics

Half of the €9.5 billion project is financed by Gazprom, with the rest covered by its European partners: Germany’s Wintershall and Uniper, Anglo-Dutch Shell, France’s Engie and Austria’s OMV.

Running deep under the Baltic Sea, the gas pipeline could potentially secure Europe’s rising gas demand at lower prices, Nord Stream 2 officials and supporters of the Gazprom-led project say.

Although the Russian state company repeats that Nord Stream 2 is “a purely commercial, not geopolitical project,” Eastern European security concerns, the ongoing Ukraine gas spat and looming US sanctions against those involved in the project suggest otherwise.

The 1,225 km long pipeline has come under fire from Washington and a number of Eastern European, Nordic and Baltic Sea countries, who fear it will increase EU reliance on Moscow and isolate Ukraine, which it bypasses, as well as bypassing the Eastern European countries, depriving them of lucrative gas transit fees.

“If Nord Stream 2 becomes operational, Ukraine will be cut out from gas transit, losing roughly the equivalent of its defence budget each year in fees,” said Agnia Grigas, an energy and political risk expert at the Atlantic Council.

“It will free up Russia’s hand in the military campaign in Ukraine without fear of damaging the export pipeline infrastructure,” she told EURACTIV. Her view is shared throughout Europe’s security community.

During a visit to the Ukrainian capital Kyiv in mid-May, US energy secretary Rick Perry said Washington was moving towards imposing sanctions on companies involved in the project in the “not too distant future.”

Henning Kothe, chief project officer at Nord Stream 2, acknowledged to reporters during a tour of the field earlier this week, that there are “all these political discussions saying it’s a political project.

But the shortest way for gas to reach Europe is “via Nord Stream 2, which is 2,000 kilometres shorter than the existing route through Ukraine”, he added.

“That is for me a fact and not politics,” he said.

Kothe downplayed the risks of US sanctions, saying that none of the partners had left the project. However, some experts warn that the possible sanctions would barely affect the project but could put the EU on a direct collision course with Washington.

The new European gas directive, revamped earlier this year, has strengthened the role of the EU Commission as the guardian of competition and diversification on the EU energy market.

It extends the bloc’s gas liberalisation rules to cover new offshore gas pipelines from non-EU countries. It’s an effort to bring the contentious Russia-backed project under the EU’s regulatory umbrella.

Germany’s economy ministry has taken note of the threat of US sanctions against Nord Stream 2, a spokeswoman said on Wednesday (22 May), adding that Berlin rejected sanctions that have extraterritorial effect.

Chancellor Angela Merkel’s unyielding support for the project, played chiefly to the domestic business audience, has isolated Germany against many EU member states.

While US opposition to the project is ostensibly political, large commercial interests are at stake, too.

Uncertainties about the effects of the existing US sanctions on their business already occupy more than half of the German companies operating in Russia, a survey of the German-Russian Chamber of Commerce and the German Eastern Business Association (OAOEV) found.

“The new EU gas directive might lead to legal uncertainty for those companies (…) and could make Europe unattractive for investment even beyond new gas pipelines,” Achim Dercks, deputy chief executive of the Association of German Chambers of Industry and Commerce, told EURACTIV.