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Baltic, Polish Leaders Rejuvenate Amber Gas Pipeline Proposal as Alternative to Controversial Nord Stream

Published: 2/6/2008
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Leaders of the Baltic states and Poland are keen to convince Russia and Germany to abandon the subsea Nord Stream gas pipeline project in favour of a land-based pipeline running through Poland and the Baltics, but the benefits for both Germany and Russia from Nord Stream continue to outweigh its costs, even as they rise.

Global Insight Perspective

 

Significance

Polish Prime Minister Donald Tusk is due to visit Russian President Vladimir Putin at the end of this week, and among the many topics on the agenda is likely to be the Nord Stream gas pipeline project, which Poland opposes.

Implications

Tusk, armed with support of the three Baltic states, is expected to push Putin on scrapping the Nord Stream gas pipeline and lobby Russia to pursue construction of the "Amber" gas pipeline instead, a land route that would carry gas from Russia via Estonia, Latvia, and Lithuania to Poland and on to Germany.

Outlook

Although the Amber project may make sense eventually as an additional route in supplying Russian gas to Europe, as an alternative to Nord Stream it is unlikely to sway Russia or Germany to abandon the direct Baltic Sea link connecting those two countries.

Two Views of "Energy Security"

As the Nord Stream gas pipeline project has run into increasing problems in recent months, support for an alternative, land-based gas pipeline linking Russia to Germany is beginning to build. Nord Stream, a collaborative project that is designed to carry Russian gas directly to northern Germany via a pipeline across the Baltic Sea, continues to face strident environmental opposition from the Baltic and Nordic states, and Estonia has even gone so far as to deny the project consortium—comprised of Russia's Gazprom (51%), Germany's BASF and E.ON (20% each), and the Netherlands' Gasunie (9%)—the right to survey the Baltic state's territorial waters, forcing Nord Stream to rely on Finnish co-operation to ensure the project goes forward. The Finnish government has wavered in its support of the pipeline, but is still expected to allow the pipeline to be laid in its territorial waters.

Still, the pipeline, which is due to carry 27.5 bcm of gas per year to Germany beginning in 2011, has seen its estimated costs for construction rise to nearly US$12 billion, double the original estimates, before the first subsea section of the 1,200-km pipeline has even been laid. Construction is running behind schedule as well, and the continuing environmental opposition to the project now appears to be emboldening leaders in Poland and the Baltic states to push more strongly for an alternative project. Yesterday, Latvian President Valdis Zatlers told Reuters in an interview that Latvia supports the "Amber" project, a gas pipeline that would run from Russia to Germany via the three Baltic states and Poland. Zatlers said that the Amber pipeline has "the same economic efficiency [as Nord Stream], but from the point of view of security and the environment it is much better".

Polish Prime Minister Donald Tusk is planning to visit Russian President Vladimir Putin in the Russian capital, Moscow, at the end of the week, and one of the subjects likely to be discussed is the Nord Stream pipeline. Polish officials continue to oppose the Nord Stream project, accusing Russia and Germany of compromising Poland's energy security by seeking to strengthen their own with the direct pipeline link. Poland has been pushing Russia instead to build a second line of the Yamal-Europe pipeline across Poland, but Baltic officials are also counting on Tusk to raise the Amber project idea with Putin as an alternative to Nord Stream. Jerzy Rutkowski, the secretary for political issues at the Polish Embassy in Moscow, told Reuters that, "The land pipeline may cost about US$3 billion. So why pay US$12 billion if you can pay four times less?"

Transit Versus Supplies…or Both?

The Polish-Baltic argument in favour of the Amber pipeline instead of the Nord Stream pipeline represents a subtle change of strategy from their previous stance, which mainly voiced opposition to the subsea pipeline. This appears to reflect the reality that the European Union (EU), while wary of the environmental risks of laying a gas pipeline via the Baltic Sea, is largely in favour of Nord Stream, as the pipeline will provide additional Russian gas supplies to meet rising European demand as well as open up a new supply corridor from Russia to Europe, reducing the leverage that problematic transit states Belarus and Ukraine have over Russian gas exports. Thus, in voicing support for the Amber project rather than merely opposing Nord Stream, Poland and the Baltic states are emphasising the stability of this alternative transit route. "[There are] no political risks at all, the pipeline would run across the territories of Russia and European Union countries, which will definitely stick to transit agreements," Rutkowski told Reuters.

Still, Polish and Baltic leaders will have a hard time in convincing officials from the EU—let alone from Russia and Germany—to change course this late in the game, even with Nord Stream's problems. The arguments about lower costs for the Amber pipeline are questionable, given the need for Russia to pay transit fees to countries along the route. In fact, Irina Vasilyeva, a Nord Stream spokeswoman, said yesterday that, "It may be more expensive to build under-sea pipelines, but their overall costs prove to be 15 percent lower over 25 years than those of an onshore pipeline." Indeed, Nord Stream advocates have accused Poland, Lithuania, Latvia, and Estonia of merely rent-seeking in their opposition to the subsea pipeline, arguing that those states are all seeking construction of a land route so that they can share transit fees for Russian gas exports destined for Germany.

Outlook and Implications

Given that the Baltics and Poland have stated their desire to diversify their sources of gas imports, it is hard to understand how construction of the Amber pipeline would achieve this goal, so if these countries do not plan to take additional Russian gas from this route, it seems that their main goal in proposing the land-based route would be to secure transit fees. Their argument about Nord Stream jeopardising their energy security, fatalistically reasoning that construction of a direct supply route from Russia to Germany could allow Gazprom to cut off supplies to Latvia, Lithuania, Estonia, and Poland without affecting gas exports to Germany, is clearly weak. After all, Gazprom could cut gas to the Baltics right now if it wanted to, with no impact on Germany (Poland is a different matter), but the Russian gas giant chooses not to because it has contracts in place and a business obligation to keep the taps open.

Fear of political reprisal by the Russian government and Gazprom—as much, if not more so, than environmental concerns—has driven the energy security concerns behind the opposition to Nord Stream in Poland and the Baltics. Furthermore, the fact that Russia and Germany agreed to and hatched the Nord Stream plan independent of Poland and the Baltics reinforces the notion of insecurity in those countries, drawing uncomfortable parallels to the infamous Molotov-Ribbentrop pact before the Second World War. Nevertheless, it is also clear that Europe needs the gas from Russia, and construction of Nord Stream, which is expected to double in capacity to pump 55 bcm per year when a second line of the pipeline is laid, is expected to move forward, with Europe's gas demands essentially trumping energy security concerns in the Baltics and Poland.
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