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Squeezed by Nord Stream

16th May 2011
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Construction of the controversial Nord Stream pipeline continues, but Poland isn't giving up on its objections

Gerhard Schröder's jump from German chancellor to chairman of Nord Stream's shareholders' committee raised ethical questions
Courtesy of Nord Stream

Nord Stream, the undersea pipeline project linking Russia and Germany via the Baltic Sea, is nearing the half-way mark. The first of its two parallel pipelines was laid in early May, with joining work scheduled for this summer. Gas is set to start flowing in Q4.

The news hasn’t elicited cheers in Poland, where Nord Stream has been a source of concern since it was first mooted in the 1990s. The pipeline looks to cut Poland out of the gas-transmission system between Russia and Germany, leaving Warsaw with no bargaining chips if Russia were to turn off its gas supply. For this reason the pipeline has been likened to the Molotov-Ribbentrop Pact – which secretly split Poland between Nazi Germany and the Soviet Union in 1939 – by several notables, most famously former Defense Minister and current Foreign Minister Radosław Sikorski.

Despite progress on the pipeline, Poland is still crying foul. Authorities in the country have submitted an appeal against construction plans for Nord Stream, claiming that it could impede access to the Port of Świnoujście, located near to the Polish-German border. This is the basis of a challenge which the Szczecin and Świnoujście Seaports Authority (ZMPSiŚ) has sent to an administrative court in Hamburg, following the rejection of a 2010 lawsuit against the German Federal Maritime and Hydrographic Agency’s decision to allow the construction of Nord Stream.

This appeal, the latest step in an ongoing legal challenge, has returned the pipeline project to the center of public and political debate in Poland at a time when the country is preparing to take over the presidency of the EU Council.

Establishing the status of Nord Stream in relation to the EU’s third energy package – which seeks to rein in state monopolies through the separation of ownership of gas infrastructure from gas production or trade – has been identified as a key priority for Poland’s presidency. At the same time, Russian authorities are attempting to ensure this package will not apply to its infrastructure assets in the EU, including Nord Stream.

Trouble with the neighbors

Polish opposition to Nord Stream centers on the fact that, because it is not buried in the seabed, it could prevent the entry of large ships to Świnoujście Port, thus interfering with trade.

Opposition to the pipeline may not have prevented its realization, but the Polish government is hoping to salvage at least a small concession from the consortium behind the project, and indeed from the German authorities, in the form of a binding commitment to ensure that access to the port is not impeded.

ZMPSiŚ had previously requested that the section in question be buried under the sea floor in order to eradicate the problem once and for all. After this proposal was rejected, the German authorities proposed a new shipping route for boats coming into the port which would extend their journey time by 30 minutes, but would mean no issues with draft clearance.

This longer journey time is not a problem, the CEO of ZMPSiŚ has said, but the bureaucratic business of creating a new official shipping route is troubling.

“It’s going to be necessary to establish the new shipping route officially – this route is through German territorial waters – and I don’t yet know who will take the initiative in establishing the route and putting it in the international shipping documents. This will take a long time, and will also be expensive,” Mr Siergiej explained.

From the point of view of Świnoujście’s development as a port, Mr Siergiej suggests that resolving the difficulty posed by Nord Stream is essential. As widely reported, the pipeline will effectively make the current shipping lane impassable to ships whose drafts (the vertical distance between the waterline and the vessel’s keel) of more than 13.5 meters.

“The Baltic is limited to ships with a draft of approximately 15 meters and from what we observe, other Baltic ports are getting ready to accommodate such ships. Therefore with a view to the development of our port in Świnoujście, we must make it possible for ships with such drafts to sail to it,” he underlined.

The German port of Rostock is making such preparations, meaning that a rival Baltic port in Germany could potentially benefit from the stunting of Świnoujście’s development plans. This is not only an economic issue, but also a political one for Poland. The country’s politicians run the risk of looking weak in the face of pressure from big powerful neighbors unless they resolve the problem quickly.

A history of controversy

Nord Stream began in 1997 with a Russian-Finnish feasibility study. The project got underway in earnest in 2005, when Russia’s OAO Gazprom established the North European Gas Pipeline together with BASF SE/Wintershall Holding GmbH and E.ON AG. In the intervening years, investors from the Netherlands (Gasunie) and France (GDP Suez) joined the consortium.

Russian gas is already pumped to Germany through the Yamal pipeline, which runs overland through Poland and Belarus, and Russia had previously made a commitment to upgrade and significantly increase the capacity of the pipeline. However, Russian state gas concern Gazprom later threw its weight behind Nord Stream, abandoning the Yamal upgrade plan.


Courtesy of Nord Stream
The cost of building an undersea pipeline, rather than bending it over-land around the Baltic coast, is enormous. But Nord Stream will allow Russia to avoid certain transit countries with which it has had difficulties in the past – namely Poland, Belarus and Ukraine. At the same time, it will gain the ability to shut off supplies to truculent neighbors without hurting partners in Western Europe.

The involvement of Russian and German politicians has also been a source of concern. Gerhard Schröder, for one, raised eyebrows in 2005 when he accepted the chairmanship of Nord Stream’s shareholders’ committee less than a month after stepping down as chancellor of Germany. While in office he had been instrumental in negotiations concerning the pipeline project.

Vladimir Putin, former president and current prime minister of Russia, has also been a tireless campaigner for Nord Stream. And when the ZMPSiŚ filed its lawsuit last year, Mr. Putin told Russian daily Kommersant of his “surprise” at the objection, even though Polish authorities’ concerns about the port being blocked have been on record since at least 2007.

Growing concerns

It has been widely reported that Nord Stream will obstruct the passage of liquid natural gas (LNG) tankers to an LNG terminal which is currently under construction in Świnoujście. The terminal, which is managed by Polskie LNG, is a flagship project in Poland’s strategy to diversify its gas supply sources and achieve greater energy security.

But concerns regarding LNG transport are somewhat overblown, at least in the short term.
“Both the LNG terminal (in Świnoujście) and the port facility connected with it are designed to accommodate one of the largest LNG tankers ever built, Q-Flex tankers, with a maximum draft of 12.5 meters,” explained Zbigniew Rapciak, president of the management board of Polskie LNG.

“These vessels will be able to deliver LNG to Świnoujście from almost anywhere in the world, regardless of the Nord Stream pipeline,” he said.

Source: Central Statistical Office
Looking to the future, however, it’s harder to say what the drafts of future tankers will be. The same is true of overall maritime transport, as cargo ships continue to grow in size.

And the stakes are high in European shipping. The sector holds much promise and has moved up the strategic priority list for both Polish and European Union authorities. Having witnessed a considerable dip in 2009, shipping bounced back impressively in 2010. The sector saw a 30 percent increase in the transhipment of goods, year-on-year, and all Polish ports, including Świnoujście, recorded improvements in their operating results.

Maritime transport is an essential part of the EU’s strategy for a more sustainable transport mix, and considerable amounts of EU funds are being spent to boost the infrastructure of Poland’s ports. It is clear that the development of Świnoujście Port is not a subject of indifference for the EU, but Mr Siergiej said that attempts to communicate with the European Commission on this subject have failed.

“Last year, we sent a letter to the European Commission highlighting the fact that Nord Stream may break two of the four basic EU treaty freedoms – freedom of the movement of goods and freedom of the movement of services,” Mr Siergiej said.

He added, “We still have not received any response from the Commission to our letter, which has been sent to various committees, none of which has responded and this is despite the fact that we sent another letter, urging the Commission to look at our case.”

EU Council presidency

Poland’s six-month presidency of the EU Council, starting in July, will give the Polish government an opportunity to highlight its opposition Nord Stream’s possible exemption from the EU’s third energy package. The package requires operators to observe a high degree of transparency in terms of information regarding their activities.

Russia is keen to secure an exemption for the pipeline, allowing Gazprom to maintain control over both the transmission infrastructure (Nord Stream) and the production and trade of gas which goes through the pipeline. However, a recent article in daily Gazeta Prawna suggested that José Manuel Barroso, the president of the European Commission, is in favor of subjecting Nord Stream to the third energy package’s directives.

Considering the history of attempts to prevent or limit the pipeline’s progress up to now, Nord Stream’s opponents have few reasons for optimism. Marcin Libicki, a member of the European Parliament from 2004-2009, authored a 2008 report on the project which highlighted the environmental and political dangers involved. The report was adopted by the European Parliament almost unanimously; nevertheless, its warnings and cautions went unheeded.

“The investment [in the Nord Stream pipeline] went ahead, and so far, the business-political machinery behind it is managing to cope with the political will of the democratically chosen representatives of EU citizens,” Mr Libicki told WBJ.

The future

Looking to the second half of 2011, a major task facing the Polish government is to re-emphasize the importance of energy solidarity in the EU, a concept which Polish politicians from all ideological walks of life have called into question concerning the Nord Stream pipeline. So far, said Mr Libicki, this solidarity has been visibly lacking.

“The failure to act [in response to the report on Nord Stream] on the part of the executive bodies of the EU showed the weakness of European solidarity in the field of energy,” he commented.

“The triumph of particular interests in a particular group of countries over community-oriented thinking on energy security is a serious impediment to the continuing process of political and economic integration, particularly when it comes to common security,” Mr Libicki concluded.

Brendan Melck


From Warsaw Business Journal


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