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9 Apr, 2010 07:15

Nord Stream breaks ground

The construction of the Nord Stream pipeline has officially begun after a five-year wait. The 1200-kilometer pipeline will be the longest in the world, and directly supply Russian gas to mainland Europe.

From the strain of laying pipes on the seabed, environmental fears of states in its path, to the eye-watering $11 billion cost of construction, the Gazprom led team has surprised many to make the dream a reality.

President Medvedev, who has assisted at the opening ceremony, said the project will meet Europe's energy demands as well as create new jobs both in Russia and the EU.

“Despite us carrying out research aimed at finding new alternative sources of energy, we are convinced demand for gas in Europe will grow. The Nord Stream project is an example of an effective multilateral partnership in the energy sector. It opens up possibilities to expand the transnational energy infrastructure so that we can jointly develop gas fields. It will create new jobs in Europe and Russia,” Medvedev pointed out.

The construction of Nord Stream is our contribution to global efforts to combat climate change. The increase in gas consumption in the energy balance of Europe will help reduce harmful emissions into the atmosphere without detriment to the economy,” he added.

Former German Chancellor Gerhard Shroeder also spoke during the ceremony, saying he expects further energy cooperation between Russia and the EU in the future.

This pipeline will give Europe direct access to Russia's huge energy resources, in Siberia in particular,” he said. “ As far as any dependency is concerned – it's mutual.”

Presidential aide Arkady Dvorkovich similarly noted that the Nord Stream project proves Europe remains Russia's leading partner in terms of energy supplies.

“Construction of the Nord Stream pipeline fulfills several tasks. The primary task is to increase reliability of gas supplies to Europe. This issue has broader implications, as we are increasing gas supplies to other countries as well, including the BRIC states,” Dvorkovich said.

“But at the same time,” he continued, “Europe remains Russia’s leading partner, and we’d like to avoid any crisis situations around energy supplies, because we do not want anybody to think that Russia is an unreliable partner. Construction of the pipeline is just one part of the plan to create a system of reliable supply. The fact that several countries are taking part in the project proves that it is in demand and many states take great interest in it.”

"What is really remarkable about Nord Stream is this is essentially an engineering solution to a political problem," says Vitaly Ermakov from Cambridge Energy Research Associates, "Because Russia has probably the best engineers in the world, and Russia came up with this solution to avoid the transit risk via Ukraine,”  he told RT.

But the project is treading on thin ice. To maintain pressure along the route, it’s advisable for pipelines to have so-called compressor stations every 100 kilometers.

By contrast for the 1,200 kilometers of Nord Stream undersea, Gazprom’s relying on just two, giant stations – one in Russia, and one in Germany.

Dmitry Aleksandrov, Head of Analysis at Univer Captial, warns the project could end up in hot water.

“It really needs compressors every 100 kilometers at least, especially considering the size of the pipe. But Europe fears Russia will use undersea stations for spying. Unfortunately that’s forced Gazprom to try and compensate with these vast compressors at each end.”

However, against the odds, the project is keeping its deadlines. First gas is promised to start flowing  next year. Nord Stream will pump 55 billion cubic meters a year, enough for more than 26 million households in Europe.

Julian Lee from the Centre for Global Energy Studies says that as much as the project could prove beneficial for Russia and the EU, the by-passing of existing transit countries could prove costly to them.

Nord Stream is going to add surplus capacity to the transit network. Gazprom won’t need to operate Nord Stream and its Ukrainian and Belarusian transit routes at capacity. What that means is that there is a degree of flexibility. It means that Ukraine and Belarus begin to lose some of their leverage as the only transport corridors for Russian gas to Western Europe,” Lee said.

Professor Alan Riley from the Centre for European Policy Studies says the real impact from the project will be felt when Nord Stream starts operating at full capacity.

The first thing to realize is that Nord Stream itself is not one pipeline, but two. It is 27.5 billion cubic meters in each pipeline,” Riley says. “And the most important thing to realize is that what we are talking about is the building of the first pipeline. If you go up to 55 billion cubic meters then you have a very significant diversion of supply.”

Vyacheslav Mishchenko, from the Pace Global Energy Services Consultancy, says that concerns over the effect of the economic crisis on Europe’s demand for gas could be overstated.

We know that such kinds of projects are scheduled for the next 20-30 years. So in that long-term perspective, I think that we will definitely see the recovery of the world economy and the EU as well. And that will definitely increase the demand,” says Mishchenko.