New Obstacles for the Nord Stream Pipeline

by Roman Kupchinsky

The German Ministry of Defense has once again voiced its opposition to the proposed route of Gazprom’s major gas pipeline project- the Nord Stream pipeline. The Bundeswehr reservations were recently presented to the German parliament’s committee on national defense, in which the Defense Ministry stated that the route was too close to the island of Rugen where large scale German naval maneuvers are held.

The news of this renewed opposition to Nord Stream came on the same day that German Foreign Minister Frank-Walter Steinmeyer arrived in Moscow for talks with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin.

In the past Steinmeyer had been a firm supporter of Nord Stream. According to Jamestown senior fellow Vlad Socor, “The Russo-German pipeline is not a European project in any sense. Interested parties ranging from the Kremlin and Gazprom to German business groups and elements in the German government portray this project as a European one. German Minister of Foreign Affairs Frank-Walter Steinmeyer used this argument when visiting Estonia.”

However this month, Steinmeyer is challenging German Chancellor Angela Merkel in the upcoming election and is reluctant to whitewash Nord Stream which has become a controversial issue for many German voters. As the candidate from the SPD, once headed by former chancellor Gerhard Schroeder, a key executive in the Nord Stream consortium, Steinmeyer is now caught in a vicious political battle. The Bundeswehr report tempered his support of Nord Stream to the great displeasure of the Russian leadership. Steinmeyer’s position is also weakened by the fact that the head of the Nord Stream Consortium office in Switzerland is Mathias Warnig, a former intelligence officer for the East German security service, the hated Stasi.

Responding to the German military report, the deputy CEO of Gazprom, Alexander Medvedev stated: “Europe must decide how to resolve this situation. If Europe does not want our gas, we will find the means to sell it elsewhere.”

Medvedev, in what might be seen as a threat to the EU, once again raised the specter of Gazprom diverting gas from European markets and selling it as LNG to the U.S. and Canadian markets. Bloomberg quoted the Gazprom official on June 10, 2009: “Gazprom is seeking as much as 10 percent of the U.S. gas market by 2020, after two Arctic liquefied natural gas projects start producing, deputy CEO Alexander Medvedev told reporters Tuesday.”

"The volume which we have right now is just 0.5 percent of natural gas consumption of the United States, but with gas out of Shtokman and maybe Yamal LNG our share in the U.S. and Canadian markets would go up between 5 and 10 percent," Medvedev said.

Many U.S. energy analysts view this as an empty threat. LNG is still a tiny source of gas supplies to the U.S. and will remain such for years to come. Besides, Russian LNG will face fierce competition from Qatar and Nigeria, not to mention Trinidad and Tabago, the main supplier of LNG to the U.S.

Is the Nord Stream pipeline doomed? Much will depend on the upcoming German elections and on the continuing opposition to Nord Stream from Poland and the Baltic states. But the end game will take place in the near future and a showdown between Gazprom and Germany is in the works.

Ukraine Allows Gazprom to Upgrade Its Gas Pipelines

[Photo Credit: Ukrainian Prime Minister Yulia Tymoshenko and Russian Prime Minister Vladimir Putin at the joint press conference. Moscow, April 29, 2009. Photo courtesy of the Cabinet Press Office/ForUm (en.for-ua.com).]

On Wednesday, April 29, the Ukrainian Prime Minister Yulia Tymoshenko paid a one-day visit to Moscow to attend the meeting of the Russian-Ukrainian intergovernmental Economic Cooperation Committee and to meet with her counterpart, the Russian Prime Minister Vladimir Putin. As expected, gas transit issues topped the agenda of Tymoshenko's brief but productive visit, which produced a number of important results.

Chief among them is Moscow's pledge not to fine Ukraine for failing to purchase 40 billion cubic meters of gas from Russia in 2009 in accordance with the bilateral contracts signed on January 19. The relevant provisions of those contracts stipulate that Ukraine is obliged to pay for the aforementioned amount even if Kyiv decides not to purchase all of it. However, the global economic downturn forced Ukraine to scale down its gas consumption thereby violating its contractual obligations vis-à-vis Russia's Gazprom in the first quarter of 2009.

In exchange, Tymoshenko invited Russia to participate in the EU-led overhaul of Ukraine's gas transportation system. It should be recalled here that the EU-Ukraine declaration on the modernization of Ukrainian gas transit system, which was signed in March, stung Moscow because it excluded Russia. During the joint press conference with Putin, which followed the six-hour talks, Tymoshenko stated, "I think everyone understands that it is impossible to modernize the gas transport system without Russia's participation. We have invited Russia to be a key player in the modernization of our gas transport system."

Ukraine's two other relatively less important concessions to Russia ought to be mentioned as well. Tymoshenko expressed Ukraine's commitment to assisting Russia with its accession to the World Trade Organization. In addition, she assured Moscow that Ukraine does not supply Georgia with weapons and does not intend to do so in the foreseeable future. In the aftermath of the Russia-Georgia war of August 2008, the issue of Ukrainian weapons deliveries to Georgia has been a major irritant in bilateral relations.

The Ukrainian experts praised Tymoshenko's visit to Moscow. Jamestown analyst and Ukraine expert Roman Kupchinsky told the Jamestown Foundation Blog that it must be made clear that Tymoshenko did not give Russia any ownership rights over the Ukrainian gas transport system. The decision to grant Gazprom the right to participate in the modernization of Ukrainian gas transport system Kupchinsky interprets both as a pragmatic step in placating Russia and a reasonable measure to lower the overcharged rhetoric in the area of Ukrainian-Russian energy relations.