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Sweden, Finland Give Approval for Nord Stream

Published: 11/6/2009
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Sweden and Finland gave the green light for the Nord Stream pipeline project to traverse their exclusive economic zones (EEZ), eliminating the biggest obstacles to the successful, on-schedule realisation of the project.

IHS Global Insight Perspective

 

Significance

After years of delays, Nord Stream finally obtained environmental permits from Sweden and Finland, which were seen as the main stumbling blocks to the project’s realisation.

Implications

While Finland’s approval was widely anticipated, Sweden’s positive view with regard to the project came as a surprise. However, a number of factors including extensive diplomatic lobbying, the prospect of economic benefits, and the perception that European security of supply as far from assured must have all acted to sway Swedish opinions.

Outlook

The project still needs to obtain permits from Germany and Russia, but given that both countries are strongly in favour of Nord Stream it is highly likely that construction of the pipeline could begin in 2010.

The Nord Stream natural gas pipeline project passed two important milestones yesterday as both Sweden and Finland granted permits to Nord Stream AG, the consortium promoting the project, allowing use of their Exclusive Economic Zones (EEZ) for the pipeline to traverse the Baltic Sea. These two approvals significantly improve the chances of the consortium—which is led by the Russian natural gas giant Gazprom with a 51% stake, but also includes Germany's BASF/Wintershall, E.ON Ruhrgas, and Dutch company Gasunie—to meet its deadline and begin the construction of the pipeline in early 2010. Nord Stream is designed to carry 55 bcm/y and to run from the Russian port of Vyborg to Greifswald on the German coast, passing through the territorial waters or EEZ of Russia, Finland, Sweden, Denmark, and Germany and indirectly affecting those of Lithuania, Latvia, and Estonia. The 7.4-billion-euro project will consist of two parallel pipelines. The first one will have transmission capacity of around 27.5 bcm/y and is due for completion in 2011.

Troubled History

Receiving all the necessary permits for passage through the Baltic Sea has proven to be Nord Stream’s biggest challenge as the project has been stuck at this stage of development since 2008, when its initial applications were rejected. However, following an in-depth environmental impact assessment (EIA) and a lengthy consultation process carried out by Nord Stream AG, 2009 is proving to be a much more successful year for the project.

Finland

The Finnish leadership was seen as pro-Nord Stream, even if reservations did exist in other branches of government. Nord Stream secured cabinet-level approval early on in the process, but in 2008 the Environment Ministry asked the consortium to resubmit the EIA in 2009. In July the Finnish environment agency granted approval to the EIA (see Related Articles), claiming that the gas pipeline posed no serious environmental threat to Finland and can move forward to the next stage in the approval process. Finland is 100% dependent on Russian gas, so objecting to the project would have made the pipeline even more politicised. Additionally, the environmental permits were linked to the issue of Russia’s imposition of tariffs on timber exports to Finland, which prompted the expectation that Russia and Finland may strike a quid-pro-quo deal. Following the environmental approval in July, the Finnish government on a number of occasions gave positive signals that the project would eventually be approved. However, this gesture of goodwill was not fully reciprocated as last week Russia indicated that it will only partially meet Finnish demands by agreeing to only a temporary freeze in timber export tariffs.

Sweden

Gaining Sweden’s favour proved to be an even harder task. From the very outset of the project Sweden expressed apprehensions about the environmental effect of the pipeline on the Baltic ecosystem. The government also raised objections to the consortium’s plans for a maintenance platform close to the island of Gotland, which was seen as a breach of Sweden’s national security. To address these issues the consortium devised a technical solution to allow the pipeline to be built without the platform and in October 2008, Nord Stream resubmitted its application. On 21 August 2009, the Swedish government's public consultation process for Nord Stream came to an end. Initially, there were strong indications that Swedish leadership was still not in favour of the project on environmental grounds. The country is also unlikely to benefit directly from large streams of gas from Nord Stream, which limited the economic importance of the project from its own perspective. However, it could be argued that a number of factors have influenced Sweden’s opinion in favour of the project.

First, Sweden holds the six-month rotating European Union (EU) presidency. Nord Stream has already received the backing of EU energy commissioner Andris Piebalgs, as well as the European Parliament, and so is seen as a "European project", which in turn has put a lot of pressure on Sweden to support the project. Second, on 20 October Denmark approved Nord Stream, and a few weeks earlier the Danish company Dong Energy concluded a long-term agreement to double the pipeline’s supplies to Denmark to 2 bcm/y. This not only increased the diplomatic pressure on Sweden, but also opened the possibility that it could eventually receive exports from Denmark of Nord Stream gas. Finally, the news that Sweden had given Nord Stream the necessary permits came as Ukraine admitted to experiencing problems in paying Russia for gas it received in October, and the European Commission (EC) chief Jose Manual Borroso urged the Ukrainian president not to allow a disruption in gas supplies to affect the entire bloc. Thus, it could be argued that the prospects of yet another gas crisis in Europe exemplified the necessity for supply route diversification and prompted the Swedish leadership to back Nord Stream.

Outlook and Implications

The permits that Denmark, Finland, and most significantly Sweden had to issue were seen as the main obstacles to Nord Stream’s realisation. The project still needs to obtain permits from Germany and Russia, and also a separate construction permit from Finland. It could be expected that as the Finnish government has already backed the project, the construction permit would be a mere formality. The same is true to an even greater extent regarding the Russian permit, given that the country’s government has been the most fervent supporter of the project and Russian authorities claimed as early as 2007 that they see no environmental danger from the pipeline’s construction. Getting Germany’s approval may take a little longer, but given that the country is the main beneficiary from the project in terms of gas import volumes and that Nord Stream has the backing of the government, it is highly unlikely that any delays will occur. Thus, the door for Nord Stream’s realisation appears to be wide open, and as long as there are no problems with financing, or some other unforeseen political issues, construction will likely begin in early 2010 as planned.

Related Articles

Russia: Denmark: Europe: 3 November 2009: Denmark to Receive 3 bcm/y Through Nord Stream, Says Russian PM

Russia: Finland: 26 October 2009: Russia Maintains Timber Export Tax, Risking Fallout with Finland Over Nord Stream

Russia: Denmark: Europe: 26 October 2009: Nord Stream Pipeline Receives Clearance from Denmark

Germany: Finland: Europe: 8 October 2009: Finland to Officially Approve Nord Stream, But New German Legislation May Delay Project

Russia: Denmark: 2 October 2009: Gazprom, DONG Energy Double Nord Stream Gas Supply Agreement

Russia: France: 15 September 2009: EDF Could Take Stake in Russia's South Stream, GDF Suez Still In Talks over Nord Stream

Russia: Sweden: Europe: 27 August 2009: All Eyes on Sweden as Nord Stream Ends Public Referral Period
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