Eurasia Daily Monitor
June 9, 2008
The Council of Baltic Sea Countries, which met at the prime-ministerial level on June 3 and 4 in Riga, failed to hold a multilateral discussion about Nord Stream, the Russo-German gas pipeline project on the Baltic seabed. The Council is mandated to deal with environmental and transportation issues, both at the high level and through the Council’s specialized commissions. Russia and Germany, however, have excluded the Council of Baltic Sea Countries from consultations on Nord Stream. While frequently advocating multilateralism in other contexts, Germany and Russia are acting unilaterally with this risk-fraught project.
Substituting for German Chancellor Angela Merkel, who declined to attend, Minister of Foreign Affairs Frank-Walter Steinmeier declared that he had “not perceived” any official criticism of that project at the Council’s summit (Financial Times Deutschland, June 5). If so, it is because the Council of Baltic Sea Countries falls short of dealing with this issue of uppermost concern to countries around the Baltic Sea.
Nord Stream consortium representatives offered an update on the project in a business forum, held in parallel with the summit. The project’s estimated cost has risen to Euro 7.5 billion, up by 50 percent from the 2006 estimate of Euro 5 billion. The target dates for commissioning the pipeline’s first and second loops have been delayed to 2011 and 2012, respectively, which is two years behind the schedule declared two years ago.
The consortium has yet to obtain riparian countries’ consent to laying the pipeline through their exclusive economic zones and/or sovereign sectors. It also needs permits for preliminary work of an exploratory character in those zones and sectors.
Thus far the consortium has applied to Finland, Estonia and Sweden to that end. Sweden has returned the application to the sender, on the grounds that the information therein was inadequate. Estonia and Finland have also raised multiple objections within their legal rights. Similar problems seem likely to arise when the consortium submits requests to Poland and Lithuania.
All these countries are concerned by the project’s likely impact on the maritime environment and navigational safety. Estonia, Lithuania, and Poland are additionally concerned by the project’s political risks to their security of supply. By circumventing these countries through Nord Stream, Moscow could hypothetically reduce or interrupt gas supplies to them while continuing to supply Germany directly. In this way Russia could play off European Union member countries against each other economically and politically. By the same token any bypass pipeline would accentuate the isolation of Estonia, Latvia, and Lithuania from EU energy markets. It would perpetuate the lack of pipeline connections, instead of closing that gap by building pipeline links.
Latvia’s position is more nuanced because it owns natural storage capacities of significant size for gas. If the Nord Stream pipeline is eventually built, Latvia hopes to lay a connecting link on the seabed, from the Nord Stream pipeline to the Latvian shore, and build a gas-fired plant for electricity generation.
For Poland, a gas pipeline overland from Russia to EU territory would clearly be preferable to a seabed project that bypasses Poland altogether. Polish Prime Minister Donald Tusk confirmed that position at this Baltic summit. For similar reasons Lithuania and Latvia have at various times also considered the possibility of an overland pipeline from Russia to Europe via their territories and Poland. Meanwhile the German government holds out the possibility of supplying Poland with modest volumes of Nord Stream gas through an overland link from Germany, once Nord Stream reaches German territory.
It seems increasingly doubtful, however, whether Russian gas would suffice to fill Nord Stream with 55 billion cubic meters annually (27.5 billion cubic meters planned for either loop). That intention would seem even less plausible if Russia goes ahead with the South Stream pipeline project on the seabed of the Black Sea, with a design capacity of 31 billion cubic meters annually.
Chronic underinvestment and delays in commissioning new gas fields, nearly stagnant production, and fast-growing internal consumption, cast doubts on Russia’s capacity to increase its overall gas exports to Europe in any significant way before the middle of the next decade, if then. “Gas production in Russia is currently not at the level necessary to fulfill all the contracts,” U.S. Deputy Assistant Secretary of State Matt Bryza observed on June 4, commenting on Moscow’s attempts to increase its imports of gas from other producing countries. Stung, Gazprom could only respond by citing past production increases and past fulfillment of supply contracts (Itar-Tass, June 4).
The European Union intends to launch a Baltic Sea strategy in 2009, with the intention of promoting cooperation on the multilateral level. The Council of Baltic Sea Countries should find its role within this framework, if member countries take seriously the Council’s mandate to be consulted on energy supply and transit issues of region-wide concern.
(BNS, June 3, 4; Interfax, June 4; Handelsblatt, Financial Times Deutschland, June 4, 5)