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$10 bn gas pipeline from Russia to Germany opens

European leaders and Russia's president on Tuesday opened a euro7.4 billion ($10.2 billion) natural gas pipeline that links western Europe directly with Siberia's vast gas reserves in a bid to make the region's energy supply more secure.

business Updated: Nov 08, 2011 20:42 IST

European leaders and Russia's president on Tuesday opened a euro7.4 billion ($10.2 billion) natural gas pipeline that links western Europe directly with Siberia's vast gas reserves in a bid to make the region's energy supply more secure.

German chancellor Angela Merkel, French Prime Minister Francois Fillon and Dutch counterpart Mark Rutte joined Russian President Dmitry Medvedev in symbolically turning a wheel to open the pipeline in Lubmin, on the Baltic Sea coast in Germany's northeastern corner.

"We are going to put into operation the first stage of a new partnership between Russia and the European Union," Medvedev said.

The 760-mile (1,200-kilometer) Nord Stream underwater pipeline ferries the gas from Vyborg, near St. Petersburg in northern Russia, under the Baltic to Lubmin.

That creates a direct link between the Russian and western European networks -- circumventing traditional and sometimes troublesome overland transit routes through Ukraine, Belarus and Poland.

Merkel called the pipeline a "strategic project that is exemplary for the cooperation between the European Union and Russia" and stressed that both sides benefit from the link -- Europe by ensuring steady gas supply and Russia with direct access to its biggest market.

"We will be closely linked for decades," Merkel said.

Once the project is complete, gas will flow to Europe through two pipelines. The first line, inaugurated Tuesday, has an annual capacity of 27.5 billion cubic meters.

That volume will double once the second line is completed -- expected next year. Nord Stream officials say it's the world's longest underwater pipeline.

The total annual capacity of 55 billion cubic meters is equivalent to more than 10% of the EU's current gas needs, EU Energy Commissioner Guenther Oettinger said.

Russia's Gazprom OAO holds 51% of Nord Stream, while German energy companies E.ON Ruhrgas AG and Wintershall AG each hold 15.5%. Dutch company Nederlandse Gasunie NV and France's GDF Suez hold 9% each.

Europe gets about 25% of its natural gas from Russia, which has the world's largest reserves. Until now, the gas was mostly ferried through Soviet-era pipelines crossing the Baltic states, Poland and Ukraine.

The new pipeline received high-level political backing in Germany, and former Chancellor Gerhard Schroeder went on to work for the consortium building the pipeline after he left office in 2005. But officials in Poland and Ukraine, bypassed by the pipeline, have given the project at best a lukewarm welcome.

The new pipeline will undercut Ukraine's leverage in a long-running dispute about Russia's gas and transit fees.

When the dispute between Moscow and Kiev escalated in 2009, Western Europe was taken by surprise as Ukraine shut off the pipelines, causing supply interruptions in the middle of the winter.

Germany decided after Japan's Fukushima nuclear disaster in March to speed up its plans to abandon nuclear power. With the last reactor to shut in 2022, Europe's biggest economy wants to diversify its energy supply.

Germany is concentrating on building up renewable energy sources but officials say natural gas must play a major role because it is the least-polluting fossil fuel and readily available.

Building of the Nord Stream pipeline was started in April 2010. Each of the two pipelines consists of 100,000 steel pipes laid on the seabed.

Two other gas pipeline projects are currently competing to create another link to Europe.

South Stream, expected to go online in 2015, is a Russian-backed pipeline project that is meant to transport Russian gas to Europe under the Black Sea.

The EU strongly backs the rival Nabucco pipeline -- slated to ship gas from the Caspian region through southern Europe to Austria -- but its viability has been called into question amid doubts that enough suppliers can be found to fill the pipeline.

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