Europe has begun to enjoy it and may want more pipelines bypassing Ukraine

As the demand for Russian gas in Europe is growing, the capacities of the future Nord Stream 2 gas pipeline may prove to be not enough. During the 21st St. Petersburg International Economic Forum, Gazprom’s CEO Alexey Miller said that since Jan 1, 2017, Gazprom has enlarged its exports to Europe by 9.5bn c m or 13.3%. “Over the last 1.5 years, our exports to Europe have grown by 29.4bn c m,” Miller said. RNS quotes him as saying that this is 53% of the design capacity of Nord Stream 2: “We are to launch it in late 2019, that is, in some 2.5 years. If the demand for Russian gas continues to grow, the capacities of that pipeline may prove to be not enough.”

According to Deputy Director of the National Energy Security Fund Alexey Grivach, Miller was serious when making that joke. “It was a joke where only a small part was a joke. In order to guarantee their environmental security, the Europeans will have to continue cutting their own production and will need more and more cheap gas. Nord Stream 2 is exactly what they need. So, what they will do,” the expert says.

After a certain decline in gas consumption in 2001-2014, Europe has begun to consume more. According to Platts, in 2015, gas consumption in Europe grew by 4%. In 2016, it grew by 6%. Last year, the EU consumed 447bn c m, of which 34% was Russian gas.

The demand is expected to go even higher and the same will happen to gas imports.

According to Uniper’s spokesman, in the next decade, Europe will run short of its gas reserves. So, Nord Stream 2 is one more guarantee of energy security and for Uniper it is a way to diversity its gas supplies.

OMV’s CEO Rainer Seele believes that Nord Stream 2 deserves to be supported by national governments and the EU authorities and that Europe needs additional gas routes from Russia.

This is a good suggestion in case Gazprom actually cuts its transit through Ukraine.

According to Ukrtransgaz, last year Gazprom pumped 82bn c m via Ukraine. Miller says that after 2019, the transit will drop to 15bn c m. So, as much as 57bn c m will be pumped via Nord Stream 2 and TurkStream. If Europe’s gas demand continues to grow, Gazprom will have to supply as much as 80bn c m, which is almost as much as Nord Stream 2 and TurkStream can pump.

According to Grivach, Gazprom may also use the free capacities of Nord Stream 1 and may also negotiate with Ukraine for pumping more than just 15bn c m through its territory. “But the problem is that Gazprom has long-term obligations with relation to Ukraine’s network and may face problems if it fails to meet them. On the other hand, that network is outdated and I don’t see any sense for us to spend any money on it without guarantees of stable transit,” Grivach says.

In the meantime, the Arbitration Institute of the Stockholm Chamber of Commerce is considering mutual claims by Naftogaz and Gazprom. Naftogaz wants Gazprom to redouble the transit tariff and to pay compensation for insufficient transit. On top of this, Ukraine’s Anti-Monopoly Committee has imposed a 189bn UAH fine on Gazprom for alleged abuse of its monopoly on Ukraine’s gas transit market.

There is one more way for Russia to enlarge its gas supplies to Europe – LNG. As EADaily reported earlier, Gazprom is promoting Baltic LNG, a plant with a capacity of 17bn c m a year. “On the one hand, it will be Gazprom’s weapon against similar projects by its Russian rivals, for example, Novatek’s Yamal LNG. On the other hand, it will help Gazprom to enter new markets, like Spain and Portugal, where the Russian company may compete with U.S. suppliers. Gazprom’s LNG will have an advantage there due to shorter transportation leg. But it will still be more expensive than pipeline gas,” senior expert at the National Energy Security Fund Igor Yushkov says.