Europe gas crisis boosts Schroeder pipeline plan

(MOSCOW) - With gas cuts rippling across Europe in the middle of a harsh winter, a familiar figure made his appearance on Russian state television this week -- former German chancellor Gerhard Schroeder.

Looking at ease in a gilt-edged armchair, the ex-leader of Europe's biggest economy who now heads up a Gazprom-led pipeline project was seen in a highly choreographed meeting with Prime Minister Vladimir Putin -- a personal friend.

The two men spoke about Nord Stream, a massive pipeline that would link Russia directly to Germany under the Baltic Sea and that is now being pushed by the Kremlin as the best solution for Europe's future energy security.

"The current situation only makes even more relevant our main task, our plans for the construction of a gas pipeline system along the bottom of the Baltic Sea," Putin told Schroeder in the meeting Wednesday.

"I think that our European partners have now finally realised that this project is necessary and has to be carried out promptly," Putin said.

Schroeder responded: "Nord Stream is an extremely important project... to strengthen the energy security not only of Germany but of all of Europe."

The 1,200-kilometre (750-mile) pipeline would entirely avoid transit through Ukraine, which Gazprom points to as the sole culprit in the current dispute, and pump gas directly to Russia's biggest gas export market.

"Russia has set a goal at diversifying our delivery routes for gas," Putin told journalists at his residence Thursday outside Moscow.

"If we had already built this pipeline, if no one had hampered us, it would already be operating through the Baltic Sea."

Russia on January 1 cut off gas supplies to Ukraine in a payments dispute and on Wednesday it entirely halted deliveries to Europe through Ukraine, saying it had been forced to do so because Ukraine was stealing the gas.

The ultimate winner, analysts say, will be Gazprom's Nord Stream pipeline.

The point was stressed by Economy Minister Michael Glos who said this week that if Nord Stream were already in place then Germans would feel a whole lot calmer about the prospects of disruptions from the Russia-Ukraine dispute.

German groups BASF and E.ON and the Netherlands' Gasunie hold stakes in the multi-billion-dollar project, which has been held up over environmental concerns and opposition from countries that would no longer get transit fees.

Russian state energy giant Gazprom holds a 51-percent stake in Nord Stream.

The Russia-Ukraine dispute "will give a lot more power to Germany and to Schroeder to push to resolve the issues that are holding up Nord Stream," said Chris Weafer, an analyst at Uralsib investment bank in Moscow.

The current gas crisis has coincided with a key deadline for the Nord Stream project, which is due to be reviewed by Baltic states in the coming weeks in order to receive the environmental permits it needs to go ahead.

But the company is confident that the first pipeline will be up and running by October 2011 with a capacity of 27.5 billion cubic metres a year. Total investment is estimated at around 7.4 billion euros (10.2 billion dollars).

"No doubt about it, the Nord Stream pipe and the South Stream pipe will be major winners from this dispute," said Weafer, referring also to another, more distant Gazprom project for a pipeline to southern Europe under the Black Sea.

Stephen Dashevsky, an energy analyst at Aton bank, said: "European countries should do their best together with Russia complete the construction of the Nord Stream and South Stream gas pipleines which bypass Ukraine."

"Russia will do all it can to have more leverage" through construction of additional routes, said Valery Nesterov of the Troika investment bank.

"I believe in the future of this project, albeit with delays," he said.

Nord Stream