The German landfall of the Nord Stream Pipeline contributes to the development of Lubmin as a regional energy hub. (Nord Stream)
It is doubtful whether the new, €7.4 billion ($10.2 billion) Nord Stream pipeline from Russia to Germany will bring any additional volumes of gas to Europe when the first phase of the project starts operations in October 2011.
Industry observers told Interfax that the first phase of the Nord Stream pipeline project – due on stream in October this year – would mostly flow gas that would have reached Europe anyway through two existing pipelines that transits Belarus and Poland or Ukraine, Slovakia and Czechia.
“Nord Stream is backed by long-term supply contracts, but I am not sure if it is replacing or supplementing old contracts,” Angus Paxton, principal consultant at Pöyry Management Consulting told Interfax late on Wednesday.
He added: “Arguably Europe doesn’t need the extra capacity from Nord Stream. That said, more capacity is not going to damage security of supply.”
Gazprom is the majority stakeholder in the Nord Stream joint venture with a 51% stake. BASF SE/Wintershall Holding and E.ON Ruhrgas each hold 15.5%, while Gasunie and GDF SUEZ each have a 9% stake each.
When fully operational in the last quarter of 2012, the twin pipeline system will have the capacity to supply 55 billion cubic metres of Russian gas a year to the EU.
Nord Stream is being fed by the Yuzhno-Russkoye gas field, and ties into the Russian Unified Gas System – from Vyborg in Russia and through the Baltic Sea to Lubmin near Greifswald in Germany.
However, Europe looks relatively well supplied with both piped gas and LNG, and it is doubtful if there is sufficient demand for additional volumes of gas in the foreseeable future.
“Nord Stream increases the ability to export more gas – but it will depend on whether the gas finds a buyer,” said Paxton.
Others said the gas already contracted for would be dumped on the spot markets by utilities that simply will not need the extra gas due to low demand from power generation and from industrial consumers. Moreover, energy traders contacted by Interfax said additional supplies from Nord Stream were weighing on gas prices both in the UK and on the continent. Winter contracts on the National Balancing Point in the UK were currently trading at around 73 pence/therm ($ 1.25/th) on Thursday, while equivalent contracts on the Dutch Title Transfer Facility were trading at just under €28/megawatt per hour ($38.7/MWh). Although gas prices are higher than last year, this is largely due to a rise in oil prices and reduced LNG supply – not stronger demand.
“I think Nord Stream is keeping a lid on European gas prices – we have seen prices come off since the Qatargas announcement on LNG maintenance earlier in the year,” Andrew Horstead, a London-based gas analyst at Utilyx told Interfax.
Many observers see the Nord Stream pipeline as a political move by Russia to bypass the Ukraine and ship the gas directly to Europe instead. Gas pricing disputes between Russia and the Ukraine have been frequent in the past, on some occasions leading to a cut off in supplies. In January 2009, Russian gas flows via Ukraine shut down completely hitting 18 countries including Germany.
“Nord Stream is a welcome boost to the market due to added flexibility of supply. But my understanding is that it is not new gas, but gas rerouted from the Ukraine,” Horstead said.
Still, a political manoeuvre to reduce Kiev’s negotiating power over gas prices is unlikely to be the only motive behind the Nord Stream pipeline. Gas demand is expected to grow over the coming years and Europe will face increasing competition from Asian countries, such as Japan over LNG supplies. Hence, at least in the longer term, the Nord Stream pipeline will strengthen the security of supply in Europe.
“For Western Europe, in the very short term Nord Stream will be beneficial from a security of supply perspective, as it minimises the risk of any future disputes between Russia and Ukraine affecting supplies over the winter and causing price spikes. Taking a longer term view, it does make Europe more dependent on Russian gas, and will give Russia greater pricing power. This should create a fresh impetus for Europe to push the Nabucco project,” said John Kennedy, lead analyst at Energy Quote.
Gazprom was not available for comment when contacted by Interfax on Thursday. A spokesman for Nord Stream, Frank Dudely, confirmed that Nord Stream would start flowing gas in October this year, but would not give further comment.
Nord Stream unlikely to flood Europe with cheap gas
The German landfall of the Nord Stream Pipeline contributes to the development of Lubmin as a regional energy hub. (Nord Stream)
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It is doubtful whether the new, €7.4 billion ($10.2 billion) Nord Stream pipeline from Russia to Germany will bring any additional volumes of gas to Europe when the first phase of the project starts operations in October 2011.
Industry observers told Interfax that the first phase of the Nord Stream pipeline project – due on stream in October this year – would mostly flow gas that would have reached Europe anyway through two existing pipelines that transits Belarus and Poland or Ukraine, Slovakia and Czechia.
“Nord Stream is backed by long-term supply contracts, but I am not sure if it is replacing or supplementing old contracts,” Angus Paxton, principal consultant at Pöyry Management Consulting told Interfax late on Wednesday.
He added: “Arguably Europe doesn’t need the extra capacity from Nord Stream. That said, more capacity is not going to damage security of supply.”
Gazprom is the majority stakeholder in the Nord Stream joint venture with a 51% stake. BASF SE/Wintershall Holding and E.ON Ruhrgas each hold 15.5%, while Gasunie and GDF SUEZ each have a 9% stake each.
When fully operational in the last quarter of 2012, the twin pipeline system will have the capacity to supply 55 billion cubic metres of Russian gas a year to the EU.
Nord Stream is being fed by the Yuzhno-Russkoye gas field, and ties into the Russian Unified Gas System – from Vyborg in Russia and through the Baltic Sea to Lubmin near Greifswald in Germany.
However, Europe looks relatively well supplied with both piped gas and LNG, and it is doubtful if there is sufficient demand for additional volumes of gas in the foreseeable future.
“Nord Stream increases the ability to export more gas – but it will depend on whether the gas finds a buyer,” said Paxton.
Others said the gas already contracted for would be dumped on the spot markets by utilities that simply will not need the extra gas due to low demand from power generation and from industrial consumers. Moreover, energy traders contacted by Interfax said additional supplies from Nord Stream were weighing on gas prices both in the UK and on the continent. Winter contracts on the National Balancing Point in the UK were currently trading at around 73 pence/therm ($ 1.25/th) on Thursday, while equivalent contracts on the Dutch Title Transfer Facility were trading at just under €28/megawatt per hour ($38.7/MWh). Although gas prices are higher than last year, this is largely due to a rise in oil prices and reduced LNG supply – not stronger demand.
“I think Nord Stream is keeping a lid on European gas prices – we have seen prices come off since the Qatargas announcement on LNG maintenance earlier in the year,” Andrew Horstead, a London-based gas analyst at Utilyx told Interfax.
Many observers see the Nord Stream pipeline as a political move by Russia to bypass the Ukraine and ship the gas directly to Europe instead. Gas pricing disputes between Russia and the Ukraine have been frequent in the past, on some occasions leading to a cut off in supplies. In January 2009, Russian gas flows via Ukraine shut down completely hitting 18 countries including Germany.
“Nord Stream is a welcome boost to the market due to added flexibility of supply. But my understanding is that it is not new gas, but gas rerouted from the Ukraine,” Horstead said.
Still, a political manoeuvre to reduce Kiev’s negotiating power over gas prices is unlikely to be the only motive behind the Nord Stream pipeline. Gas demand is expected to grow over the coming years and Europe will face increasing competition from Asian countries, such as Japan over LNG supplies. Hence, at least in the longer term, the Nord Stream pipeline will strengthen the security of supply in Europe.
“For Western Europe, in the very short term Nord Stream will be beneficial from a security of supply perspective, as it minimises the risk of any future disputes between Russia and Ukraine affecting supplies over the winter and causing price spikes. Taking a longer term view, it does make Europe more dependent on Russian gas, and will give Russia greater pricing power. This should create a fresh impetus for Europe to push the Nabucco project,” said John Kennedy, lead analyst at Energy Quote.
Gazprom was not available for comment when contacted by Interfax on Thursday. A spokesman for Nord Stream, Frank Dudely, confirmed that Nord Stream would start flowing gas in October this year, but would not give further comment.