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Thursday, March 15, 2018

Russia is preparing a new gas breakthrough in Europe

Russia has made several steps towards the new gas expansion on the European energy market. One result may be the construction of Gazoprovod Nord stream-2″, which will provide direct deliveries from Russia to Germany.

First, the European arbitration sided with Gazprom in dispute with the authorities of Lithuania and rejected the claim of Vilnius demanding € 1.4 billion in compensation for allegedly “unfair” gas prices. Second, German Chancellor Angela Merkel meeting with Prime Minister of Poland Beate Szydlo said that the project of the gas pipeline “Nord stream 2 refers not to the political sphere, as argued previously, many hotheads in the European Union and to economic.

This confirms the words of representatives of the Russian mining industry, which for many years say that the construction of this highway will lead to the creation of a modern powerful channel for the delivery of our “blue fuel” to the countries of the Old world.

In this case, the outdated gas transportation system of Ukraine, which is hostage to Russian gas exports to Europe will be “fixed”.

photo: Gennady Cherkasov

No king in his head

The history of gas industry in Russia began in 1819, when in St. Petersburg lit the first gas lamps. By the end of the XIX century, except the capital, was gasified Moscow, Kiev, Kharkov, Rostov-on-don, Odessa, Riga, Vilno, Tver and Kazan.

Gas was used for industrial purposes — glass melting, hardening metal, opalka tissues. In Baku, the largest oil-producing area of the Russian Empire in 1917 disposed of 33 million cubic meters of gas.

Someone will say: what the penny. Indeed, with current annual production of 635 billion cubic meters this looks serious. However, at the time was quite enough. Even in the early 1930 ies of the Soviet economy consumed 10-15 million cubic meters annually of gas, and only a decade later, this figure had grown to a relatively intelligible 3.4 billion For comparison: the US was producing at the time, 50 billion.

However, our country’s energy resources were opened up opportunities. The first form of public organizations of employees of the gas industry was created in 1948, the General Directorate for natural gas production. In 1956 it was transformed into the Main Directorate of the gas industry, then to the state Committee for the gas industry, and a decade later began the work of the Ministry of gas industry.

This led to the fact that in the second half of the 1970s, gas production in the USSR increased 4.8 times, and in 1984, our country has ranked first in the world in its production — about 590 billion cubic meters a year. The maximum record in the former Soviet Union — more than $ 815 billion — was recorded in 1992.

Echoes Of The Soviet Union

Since then much water has flowed, or if you want gas. As is known, the energy system of the USSR was built on the unified state plan. Major gas deposits were discovered in the North of the country. Large deposits discovered in Turkmenistan, which was opened in Belarus, and the Ukraine. However, the Central mining region remained North of Russia.

In 60-e years was the proven gas-bearing area in the North of Tyumen region. In 1970-1980 years in Western Siberia was put into the development of the largest deposits of natural gas: Vyngapurovskoye, Medvezhye, Urengoy, Yamburg, opened a giant gas reserves on the Yamal Peninsula. Was laid heavy duty gas pipeline in the Central and Western parts of the country.

In conditions when the Soviet resources were thousands of miles removed from the end-users, their rational use can be achieved only by combining all resources into a single network of gas supply. It was originally designed as a single body, instantly responsive to slight changes in any of its units, including operating gas and gas condensate fields, gas pipelines with installed on them compressor stations, underground gas storages, gas processing plants and distribution stations.

The presence of the ESG made it possible to optimise the levels of gas production by regions, it is rational to form gas flows safely and smoothly to ensure the gas supply to most parts of the country as well as exporting gas on a large scale. By 1989, the share of gas in fuel balance of the country reached 38.9% and approached the share of oil (39%), far exceeding the share of coal (20.4 per cent) and peat (1.7 percent).

The era of gas wars

After the collapse of the USSR gas industry of the country, established for 30 years, was shattered. The unified gas supply system of Russia was saved as a single technological complex for bringing gas from the wellhead to the consumer.

On the one hand, it was a positive thing. This bunch allowed to remain Russia’s biggest supplier of gas to European countries, and transit States such as Belarus and Ukraine, earn using their transport capacity. However, friendship is friendship, and money separately. Minsk and Kiev quickly realized that they are actually able to blackmail Moscow, demanding to reduce prices on “blue fuel” in exchange for unfettered access to Russian gas on the market of the Old world.

The first conflict between Belarus and Russia broke out in the early 2000s. Moscow declared Minsk the price of gas at $50 per thousand cubic meters (earlier, Belarus received gas at the Russian domestic price of $30). Our country then she pressed on Alexander Lukashenko, preventing him to sell a controlling stake in Beltransgaz, the operator of deliveries of Russian “blue fuel” to Europe. The head of Belarus assumed equal exchange — 49% of shares of Beltransgaz in exchange or the share in the Russian gas pipeline Yamal—Europe or one of the Russian gas fields. To defeat the old Man failed, the gas price for Belarus rose to $46.

In December 2006 began the second Russian-Belarusian “gas war”. We have announced gas price of $105 per thousand cubic meters and threatened in the absence of a contract to take her off of Russian gas. In response, Lukashenko did not sign the agreement on the transit of gas to Europe. But in the end, the contract was signed, and in terms of compromise: Gazprom gets its gas price Belarus paid increased revenues for transit.

Another major gas opposition, as we know, Russia is with Ukraine. And it is obvious that in the last two years it has worsened to the extreme.

Let’s start with history. The Russian-Ukrainian gas conflict has gone on permanently since the early 1990s. In those times the Ukrainians about the prices did not argue. The cost of gas was quite acceptable for the Ukrainian economy and slightly exceeded domestic. But Kiev always broke the payments. From time to time the debts restructured. And not always in favor of Russia, as Kiev has not paid “live” money, and different kinds of bonds, which was difficult to cash out. So the Ukrainian metallurgy, chemicals and utilities actually existed in the Russian media.

In the 2000s, everything changed. Russia demanded the return of debts in an increasingly rigid form. Had to use heavy artillery — Vladimir Putin. It came to the January 2009 crisis, when Russia cut off for non-payment of deliveries of gas to Ukraine, and she, in retaliation, has blocked the transit to Europe. As the winter was rather frosty, to Kiev pressed Brussels. The result of the then Ukrainian Prime Minister Yulia Tymoshenko has approved bonded to Kiev the agreement with “Gazprom”, which, in fact, received several years in prison.

A subsequent Ukrainian state leaders continued the attacks on Russia’s gas producers. Some compromise was achieved at the end of 2013, but it is obvious to everyone what the outcome of this result. Russia demands from Ukraine payment of a penalty and calculation of obligations for government bonds, Kiev throws Moscow claims in European courts, trying to reduce their debt to a minimum. It continues up to the present time.

Over gas, Russia has managed to quarrel even with friendly Ashgabat. In March of this year our country has terminated the contract with the state concern Turkmengaz to purchase “blue fuel”. The highlight of the conflict that we try on Ukrainian clothes and advocated the revision of gas prices. However, even from this confrontation we left the relative winners. In the current year’s purchases of fuel from Ashgabat, our company does not produce, import gas from Kazakhstan and Uzbekistan reduced to a minimum and must be purchased at a relatively low price.

We go the other way

To abstract from the dependence of the gas transportation component of the former republics) Russia began more than 10 years ago. First we built the Blue stream gas pipeline across the Black sea to Turkey. Turks — savvy people. They discovered in the agreement for the supply of this gas little ridiculous blot, which allowed them to significantly reduce the volume and purchase price of gas.

Next time Russia was more attentive. When you create the pipeline “Nord stream is the longest underwater pipeline in the world, passing under the Baltic sea, the final destination is in Germany — were selected by the several shareholders: in addition to “Gazprom” German Wintershall and E. ON Ruhrgas, the Dutch Gasunie and French GDF Suez.

But the already built power bumped to the demands of the so-called EU third energy package for gas and electricity. They suggest restrictions for vertically integrated companies in the ownership and management of energy transportation networks. In other words, the Commission had tried to divide the business of selling and transportation of gas that, in the opinion of the EC, will increase competition and will allow you to enter the market of new players and lower prices on energy.

Brussels has long cherished the creation of a “southern gas corridor” and its components — the TRANS-Adriatic gas pipeline (from the Caspian and Middle East to Western Europe via Greece, Albania and the Adriatic sea) and TRANS-Anatolian gas pipeline from Azerbaijani field “Shah Deniz” to the Western border of Turkey.

But does Europe need the gas artery? Before the end of their construction in Europe thinking about the security of their operation. Because this fuel can be used by Islamic groups against which now targeted the entire international community.

In this case, what Russia is much more profitable.

In particular, the expansion of Nord stream, the so-called route “Nord stream 2”.

This is a project of a gas pipeline from Russia to Germany. He also, like his elder brother, must pass through the Baltic sea. In addition to the Russian side its shareholders are Germany’s E. ON, Shell, BASF, Wintershall, Austria’s OMV — 10%, and even American ENGIE — 9%.

That is, there is hope that Nord stream 2″ yet to be.

And his opponents have already received quite a harsh response to their objections. According to experts, including Western, the supply of gas via Nord stream 2″ will cost significantly less than the Ukrainian route. For the EU, where no extra funds and whose economy needs a sharp increase in efficiency and cost reduction, it is very important.

The head of “Gazprom” Alexey Miller confirms this. According to him, the Northern corridor of Russian gas supplies to Europe better than Ukrainian transit. Russia has nothing against the preservation of transit through Ukraine, but it will lead to additional costs in the amount of $25-43 billion in the next 25 years for all parties. Supply similar volumes via Nord stream 2″ will cost two times cheaper.

This is indirectly confirmed by the German Chancellor Angela Merkel, who said at a meeting with Prime Minister of Poland Beate Szydlo, that the project of the gas pipeline “Nord stream 2” refers to the economic sphere and not political. Merkel stressed that previously talked about the economic nature of the project, but reminded that the gas pipeline must be implemented in accordance with the legislation of the European Union. Apparently, she is referring to the third energy package. Nord stream 2 ‘ is in line with it.

That is, the interest in this route from Europe is.

But in Russia there are several options.

As recently stated by Vladimir Putin, Russia is not going to completely abandon the transit of gas through territory of Ukraine. Question: how are we going to transit and where.

There is also a gas pipeline “South stream” — an unrealized project of the gas pipeline, which was planned to be laid under the Black sea from Anapa to Varna. It was assumed that it will diversify the supply of Russian gas to Europe and reduce the dependence of customers from unreliable transit countries. In April 2014 the European Parliament adopted a resolution which recommended to abandon the construction of the pipeline, but to freeze the construction of South stream were not discussed. Bulgarian enterprises are still working on the production of parts for this project.

Nord stream 2″ is not an alternative to “South stream” in this sense doesn’t compete with anyone, because it is based on the declining production in Northern Europe and the growing needs of the economy of the Northern European countries and Central, if you have in mind Germany, — said Vladimir Putin. — It is a purely commercial project, the state this has no direct relationship. On the second line of the Nord stream 2″, the shareholders agreed at the beginning of the “Nord stream 1”.

So the implementation of the “Nord stream 2” in life — a matter of time. The steps we are going to see literally every month.

By the way, one of these steps towards Moscow was the decision of the European court of arbitration that sided with Russia in a dispute with the authorities of Lithuania. The court rejected the claim of Vilnius to our country demanding the return of € 1.4 billion in compensation for allegedly “unfair” gas prices. Stockholm arbitration I do not see reasonable arguments of the Lithuanian side, which insisted on the return of the money paid for fuel.

As has declared “MK” the Deputy Director General for gas problems national energy security Fund Alexei Grivach, the Stockholm arbitration court took the side of Gazprom in a dispute with the authorities of Lithuania not just. Similar litigation could be followed by other former Soviet republics. For Russia it is good. According to Alexei Grivach, such a move — another nod towards Kiev, which is not going to pay Russia for gas debts. Amount, there is formed a large — according to different sources, is at least $3 billion in sovereign debt and debt of private companies that exceed this amount.

And the bypass gas route from Russia to Europe (the first is the largest supplier of “blue fuel”, the second — largest consumer) will be necessary and effective for both parties.

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