April 14, 2010

Russia, Germany mark start of Baltic pipeline project

PORTOVAYA BAY, Russia

Russian and German leaders marked the start of construction on a new pipeline from Russia to Europe under the Baltic Sea, with the deputy CEO of gas company Gazprom saying it had already signed up customers for the entire supply.

“All the gas volumes have either been contracted, or have been formalized in binding obligations,” Gazprom chairman Alexander Medvedev told reporters.

Medvedev’s remarks were aimed at speculation that the pipeline is too expensive and Europe does not need more Russian gas. Gazprom is also facing a global gas glut as demand sags due to global economic woes, and the prospect of new supplies from gas produced from shale rock in the United States.

Gazprom CEO Alexei Miller said competition from shale was not an issue in Europe and that the company supported shale gas development as a way to maintain volumes.

He said Nord Stream would be a more cost-effective way of moving gas to Europe. It avoids have to pay transit fees in countries crossed by pipelines.

“Shale gas will not have a serious influence on the European gas market and neighbouring states,” he said.

The pipeline represents an alternative to pipelines through Ukraine, Belarus and Poland, and offers a way around the disruptions caused by Russia’s price disputes with neighbouring Ukraine that have let to gas shutoffs. Those interruptions spurred European governments to look for alternative sources.

Russia’s President Dmitry Medvedev signed a section of pipe and said that “the Nord Stream pipeline will secure reliable gas supply to Europe, and at reasonable prices”.

Germany’s Chancellor Angela Merkel addressed the celebrations via a video link

The Russian president also expressed confidence that natural gas will remain a key energy source.

“Although there is an active search for alternative energy sources, demand for the blue fuel in Europe will continue to grow, and we are all confident of this,” he said.

The C7.4 billion Russian-German venture will carry some 55 billion cubic meters of gas annually via two parallel lines from Vyborg in Russia to the German port of Greifswald. The start of deliveries in one line is scheduled for 2011.

Russia is pushing forward with projects to bypass volatile Ukraine, currently its key gas transit route.

Associated Press

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