Gazprom and European gas corporations to form joint venture

Gazprom, Shell, E.ON and OMV to form joint venture to construct two pipelines from Russia to Germany through Baltic Sea to meet increasing demand, bypassing Ukraine

Photo by: Gazprom
Photo by: Gazprom

Updated Jul 28, 2015

State-controlled Russian energy giant Gazprom on Thursday signed a non-binding Memorandum of Understanding with Shell, E.ON and OMV to undertake the joint construction of two pipelines to Germany in addition to the already existing Nord Stream pipeline.

“The memorandum demonstrates the intention of the sides to implement the project of construction of two strings of the pipeline from the coast of Russia to the Baltic Sea to the coast of Germany. The capacity of the new pipeline will be 55 billion cubic metres annually,” Gazprom said in a statement, Sputnik News reported.

The new project would double the capacity of the existing Nord Stream pipeline between Russia and Germany and, according to Gazprom spokesman Sergey Kupriyanov, will have a similar route to Nord Stream.

The Nord Stream, which bypasses east European transit countries - most notably Ukraine whose internal conflict Russia is accused of being involved in - is a 1,220 kilometers long pipeline from Vyborg, Russia to Greifswald, Germany.

Russia is believed to back separatist rebels in Ukraine and has been the subject of economic sanctions by the US and the EU since the start of the conflict in Ukraine in 2014.

Russia and Ukraine are further embroiled in gas disputes which threaten the supply of gas to Europe. Russia has announced that it plans to completely abandon gas supplies to Europe through Ukraine after 2018.

Gazprom said it would form a joint venture with Germany’s E.ON, Austria’s OMV and Anglo-Dutch Shell for the project which aims to fill the gap resulting from declining European production and a global increase in demand for gas.

“New projects are important for satisfying energy demand, particularly as Europe’s domestic production of natural gas declines,” Ben van Beurden, the CEO of Shell, said in the statement.

After the memorandum of understanding was signed, Gazprom CEO Alexei Miller said the new pipeline would help “contribute to the enhancement of safety and reliability of gas supplies” to European markets.

Kupriyanov said Gazprom’s stake will be no less than 51 percent.

According to statistics supplied by Gazprom, Gazprom Export supplied 146.6 billion cubic meters of gas to European countries in 2014. The Western European market (including Turkey) consumes the bulk of Russian exports. In 2014, Gazprom Export delivered 117.9 billion cubic meters of gas to markets in the region.

The Wall Street Journal has reported that Gazprom deliveries account for one third of the European Union’s imports, around half of which is transported through Ukraine.

The European Union filed anti monopoly charges against Gazprom in April. Russia was forced to abandon plans for the South Stream pipeline in favor of the proposed Turkish Stream because of EU rules that would have required Gazprom to share the pipeline with other suppliers.

Turkey has agreed with Russia’s state-owned energy company Gazprom upon the general route for the onshore section of the planned Turkish Stream pipeline, which will turn Turkey’s border with Greece into a transit hub for Russian gas destined for the southeast European market.

Gazprom is due to complete the first section of the 180 kilometer pipeline - which will run under the Black Sea - by December 2016, Gazprom CEO Alexei Miller announced on February 8.

Greek energy ministry officials said on Thursday that Greece is expecting to sign a preliminary agreement with Russia to be connected to the Turkish Stream on Friday. Greek Prime Minister Alexis Tsipras is scheduled to meet Russian President Vladimir Putin on the sidelines of an economic conference in St. Petersburg.

The Greek officials said the agreement would be signed by the Russian and Greek Energy Ministers, the Wall Street Journal reported.

TRTWorld and agencies