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Western Europe’s gas requirements are growing apace while its own reserves are running out. With Russia’s vast reserves lying nearby, one project is aiming to tap into these valuable sources and start sating the EU’s needs by 2011. Rupert Sayer looks at the Nord Stream project’s ambitious plans to pipe gas across five international jurisdictions.

Construction of the Nord Stream offshore pipeline across the Baltic Sea – one of the most important European infrastructure projects in recent times – will start in 2010. It will comprise two lines, each totalling 1,220km in length, with a combined capacity of 55bn cubic metres (bcm) a year. Nord Stream plans to have the first of two parallel pipelines operational in 2011.

Nord Stream is a natural gas pipeline that will link Russia and the European Union (EU) via the Baltic. EU gas imports were at 336bcm in 2005, and are projected to grow by 200bcm to 536 per year in 2015, according to Global Insight.

Connecting the world’s biggest gas reserves with the European gas pipeline network, Nord Stream will meet about 25% of that additional requirement. The project will be an important contribution to long-term security of supply and a test of the energy partnership between the EU and Russia, claim the developers. Especially as North Sea gas production is falling.

Nord Stream is an international joint venture established for the planning, construction and subsequent operation of the new offshore gas pipeline. Gazprom holds a 51% stake. BASF/Wintershall and E.ON Ruhrgas hold 20% each. Dutch gas infrastructure company Nederlandse Gasunie holds a 9% stake.

 

Russian reliance

After completion in 2012, the pipeline across the Baltic aims to connect the world’s largest gas reserves in Russia, with the European gas pipeline network, securing natural gas supplies for the continent over the coming decades. The pipeline will run from Vyborg in Russia to Greifswald in Germany.

Some 60% of Russian gas exports go to EU countries (26% to Germany alone). Gazprom contributes 25% of the whole state budget, 8% of Russian GDP and controls about 60% of Russian natural gas reserves.

Paul Corcoran, Nord Stream’s financial director, emphasises: “The total dependency on Russian gas is less than often perceived. Russia actually has more dependency on European exports.

“Russia holds 25% of world gas reserves and has actually been supplying Europe with gas for 40 years. It has always been a reliable partner.”

 

Covering the costs

Project finance will fund 70% of the project’s €7.4bn costs, with shareholders’ equity covering the rest. ABN Amro, Dresdner Kleinwort and Société Générale are advising the sponsors.

There will be export credit agency (ECA) support – most probably Sace and Euler Hermes, says Corcoran. Italy’s Snamprogetti is engineering consultant, Saipem will provide the lay barge, while France’s Eupec will supply logistics and concrete weight coating.

Germany’s Europipe will make 75% of the first line of pipes, while Russia’s OMK will build the remainder.

BASF and E.ON Ruhrgas are responsible for the downstream facilities located in Germany. There are two key onshore pipelines to be built – NEL and Opal. NEL and Opal are controlled by Wingas and E.ON Ruhrgas at 75% and 25% and 80% and 20% respectively.

A connection is drawn between the completion of Opal and the first Nord Stream pipeline, scheduled for 2010 and 2011 respectively.

Once comprehensive environmental impact assessments (EIA) have been passed, the financial advisors and sponsors are able to discuss financing in earnest, says Corcoran. “We are looking to put project finance in place in 2009,” he adds.

“We shall go to the market and try and get the best deal from lenders then.”

 

Cross-border environment

As a cross-border project, Nord Stream is subject to international conventions and national legislation in each of the countries through whose territorial waters and/or exclusive economic zones (EEZs) it passes.

Before construction starts, a trans-boundary EIA governed by international law (Espoo Convention) will be completed along the whole pipeline route.

The Espoo Convention sets out the obligations of parties to assess the environmental impact of certain activities at an early stage of planning. It also lays down the general obligation of states to notify and consult each other on all major projects being considered, which are likely to have a significant adverse environmental impact across national borders.

In November 2006, Nord Stream submitted the project information document to all parties of origin (states through whose territorial waters and/or EEZ Nord Stream passes) as an input to the formal notification, according to the Espoo Convention.

Notification launched the first phase of the consultation process, during which Nord Stream participated in over 20 public hearings and a large number of meetings with the relevant authorities in the countries involved. These consultations resulted in the receipt of more than 129 statements from private and public bodies in the Baltic countries.

Permits will be required from Russia, Finland, Sweden, Denmark and Germany.

The EU has declared the project to be part of the Trans-European Network Guidelines (TEN-E). That makes Nord Stream a priority energy project of European interest in line with the EU’s overall energy policy objectives: sustainability, competitiveness and security of supply.

 

Secure and concrete

“Gas’s importance is set to grow,” says Corcoran. “There’s a movement towards it as North Sea production tails off. It also has the best CO2 emissions of the fossil fuels.”

Nord Stream is the most concrete of the European gas projects, claims Corcoran. Nabucco, piping gas from the Caucasus through Turkey into Europe, aims to come online in 2013. Galsi, piping Algerian gas into Europe, will start pumping in 2012. “Nabucco and Galsi have been around a long time,” he says, hinting that Nord Stream’s progress has been swifter and smoother.