Written by Igor Yushkov; Originally appeared at Eurasia.expert; Translated by AlexD exclusively for SouthFront
The continuing construction of new pipelines by Gazprom from Russia to the EU, Nord-Stream-2 and South-Stream, will lead to the emergence of under-used transit facilities. This means that the gas transit potentially can diminish in the Ukrainian-Polish or Belarusian-Polish lines. However the continued record-breaking growth in demand in the EU for the blue fuel from Russia may even result in the future construction of Nord-Stream-3.
Poland is Sabotaging Nord-Stream 2
Recently fears re-ignited around projects on the construction of gas pipelines from Russia to Europe. Just the other day the Minister of Foreign Affairs of Poland Witold Waszczykowski said that the project on the delivery of Azerbaijani gas to Europe, South Gas Corridor (SGC), will allow the European consumers to diversify their sources of gas supply. It is generally true that Azerbaijani gas will effectively come to Europe. But the problem is in the volume. From 10 billion cubic metres of gas, the designed capacity of the pipeline, 8 will go to Italy, one each to Greece and Bulgaria.
Earlier, the shareholders of the development project of Shah Deniz, offshore of Azerbaijan, planned to increase the capacity of the pipeline to Europe to 20 billion cubic metres. But now Baku is experiencing problems with gas production. Production capacities are not enough to simultaneously fulfill the export quotas and provide for internal customers. In the end, the Azerbaijani state oil company has negotiated with Gazprom to purchase up to 5 billion cubic metres of Russian gas per year. So the prospects for export growth from Azerbaijan are very nebulous.
It is telling that Poland decided to publicise the South Gas Corridor. The country that has long been an opponent of the Russian Nord-Stream-2 project. It is the Polish anti-trust regulator that blocked a Gazprom and European companies joint venture to implement the construction project of a new pipeline under the Baltic Sea.
The current Waszczykowski statement, no indication of his concern for the EU’s energy security, is but an attempt to give another reason of the irrelevance of Nord-Stream-2. But the argument is clearly unsuccessful, as the Russian project and the SGS will work in different markets.
Moreover, the Azerbaijani gas, under no circumstances, will reach Poland.
The Geography of Supplies to Europe
The constant Warsaw positions against Russian gas projects are partially explained by Poland’s fear of losing the transit of the raw material through its territory. But this is not so. The transit through Belarus and Poland will be maintained in any case. Thus, both countries may sleep peacefully.
In 2016, Gazprom Export sent to European countries 178.3 billion cubic metres of gas. Of which, 146.2 billion to Eastern European countries in Turkey and another 32.1 billion cubic metre to Western and Centre European countries. For gas delivery to consumers four routes were used:
- Nord-Stream (arriving in Germany). Delivery of the pipeline in 2016 was 80%, 43.8 billion cubic metres of gas from 55 billion full load capacity.
- Ukraine’s GTS (including the southern branch to Turkey). The transportation in 2016 was 82.2 billion cubic metres of gas.
- On the Belarus territory close to 40 billion cubic metres pass through (32.9 billion cubic metres a year of gas through the Yamal-Europe pipeline, 7.1 billion cubic metres through other pipelines on the republic’s territory).
- Blue Stream, the marine pipeline from Russia to Georgia.
The Transit of Russian Gas Through Belarus
Abandoning the Belarusian-Polish gas transit route from Gazprom will not happen for several reasons.
Firstly, from an economic point of view this is one of the most profitable routes. Moreover, Gazprom is the owner of the gas pipeline on the territory of Belarus.
Secondly, due to the reduction of gas production in the North Sea, additional demand for gas is increasing in North-Western Europe where the delivery of gas is convenient especially through the Belarusian route.
Thirdly, even with the realisation of all new pipeline projects, Gazprom will not be able to give up not only the Belarusian route but the Ukrainian as well.
The Transit of Russian Gas Through Ukraine
The last point is worth to consider further. Gazprom is building two new pipelines – Nord-Stream-2 with a capacity of 55 billion cubic metres per year of gas and the Turkish Stream, two lines with a total capacity of 31.5 billion cubic metres per year. That is, should both projects be completed Gazprom will have the possibility to pump an additional 86.5 billion cubic metres of gas per year to Europe.
However, there are some peculiarities. There is the ambiguity with the second line of the Turkish Stream (15.75 billion cubic metres per year). The first one will supply the Turkish consumers with the gas that previously transited through Ukraine and Bulgaria. But where and on under what conditions will the second line of the Turkish Stream go through is not clear. While it is being built in Turkey, by the time of its completion Gazprom expects to come to an agreement on the location on the EU territory. Ideally, the concern would have like to built it on the old route of the South-Stream, through Bulgaria, Serbia, Hungary and to get to Austria where the gas delivery point (Baumgarten hub) is presently located.
The second limitation is that in October the higher regional court of Dusseldorf has allowed Gazprom to load to 90% capacity the OPAL gas pipeline (one of two extensions of the Nord-Stream in Germany). This will allow Gazprom to pump an additional 10 to 12 billion cubic metres through Nord-Stream. The total maximum increase of the transport capacities of Gazprom by the end of 2019 will be approximately 98.5 billion cubic metres.
While maintaining the volume of Russian gas exports at the 2016 level, the new capacity would completely eliminate the Ukrainian GTS and another part of the pipeline capacity would be under-loaded. The surplus transport capacity was 16.3 billion cubic metres of gas per year.
However, in the period between January 1 to October 15, 2017 Gazprom increased gas exports to non-CIS countries by 10.3%. If we assume that the pace will be maintained until the end of the year, this means that in 2017 the growth in gas export was 18.4 billion cubic metres, an increase to 196.7 billion cubic metres.
If such a high demand for Russian gas will persist in the long term, Gazprom will have to use the Ukrainian GTS or built a new bypassing pipeline for gas transit to Europe. Deputy CEO Aleksandr Medvedev joked about the necessity of realising the Nord-Stream 3 project.
However, it would be more reasonable not to irritate the European authorities with talk about new pipelines. Recently the Vice-President of the European Commission in charge of Energy Union, Maroš Šefčovič stated that the EU would like to receive Russian gas via three routes, not two, and therefore Gazprom needs to maintain transit through Ukraine after 2019. In response, it would be possible to offer a satisfying arrangement to all: the Europeans must increase purchases of Russian gas, and even then new pipelines will not be enough to eliminate Ukraine without a transit.
Igor Yushkov, expert at the Finance University under the Government of the Russian Federation, a leading analyst of the national energy security fund