Russia’s 30-year vision comes true with Nord Stream 2

The Nord Stream 2 gas pipeline connecting Russia to Germany under the Baltic Sea is vilified in the United States and parts of Europe as a Russian plot to trap European gas buyers. It’s not. It is the latest link in a 30-year project to divert Russian oil and gas exports from transit routes through former Soviet neighbors.

From the Russian point of view, this is a perfectly logical goal. If you don’t think so, just ask Canadians about Keystone XL.

Since the breakup of the Soviet Union in 1991, Russia has faced the problem of depending on pipelines crossing suddenly independent, and not necessarily friendly, countries to transport nearly all of its oil and gas to international markets. .

It couldn’t even deliver crude oil to its main Black Sea port of Novorossiysk without pumping it to a corner of Ukraine, while its main outlet to the Baltic Sea was in Latvia. Gas deliveries to Western Europe were to pass through one or more of the former Soviet republics of Belarus, Ukraine and Moldova. They then had to pass through at least one of the former satellite states of Poland, the Czech Republic, Slovakia, Romania and Bulgaria.

Moscow’s relations with all of these countries were changing – and not for the better from Russia’s point of view.

Moscow has therefore launched a series of projects aimed at reducing its dependence on transit through the former Soviet states for hydrocarbon exports. New oil export terminals have been built on its Baltic Sea coast. Once the first of these – in Primorsk – was completed, export flows through the ports of Latvia, Lithuania and Poland came to naught. All of Russia’s growing overseas oil shipments eventually came through Russian ports.

The same thing happened in the south, with the cessation of crude flows through the nearby Ukrainian terminals of Odessa and Pivdenne at the end of 2010.

Russia has embarked on a similar process with gas. New large export pipelines were built to connect Russia directly to major customers – first Turkey, then Germany. The Blue Stream gas pipeline under the Black Sea has reduced Russia’s dependence on transit through Ukraine to deliver gas to Turkey, while Nord Stream has reduced the role of Belarus and Poland in Russian gas deliveries to Germany and other buyers in Western Europe.

These routes were later followed by Turk Stream and now Nord Stream 2.

Russia’s policy shouldn’t come as a surprise, nor is it unique.

The history of transit pipelines is not a happy one. The list of those that broke includes the IPSA pipeline which connected the oil fields of southern Iraq to Saudi Arabia’s east-west pipeline and the kingdom’s own Tapline line, which carried its crude to an export terminal on the Lebanese coast.

Others have been proposed, planned and even partially built, to end up in scrap. Construction of the TAPI pipeline, intended to transport gas from Turkmenistan through Afghanistan and Pakistan to India, has been under discussion for at least 25 years, but it seems even less likely to be built today than ‘in 1996.

The fate of the Keystone XL pipeline, intended to deliver Canadian crude to refineries and export terminals in the United States, should serve as a warning to anyone considering relying on transit through a neighboring country to move their hydrocarbons. on the market.

Even the transit pipelines that have survived and thrived often did not serve their original owners as well as expected.

Russia has used its own leverage as a transit country to change the management and taxation structures of Kazakhstan’s CPC pipeline to its advantage. Turkey has done the same as a host of oil and gas pipelines from Iraq and Azerbaijan, extracting both higher transit fees and increased control.

It is therefore not surprising that Russia has sought to end its reliance on similar ties.

Russia’s gas export monopoly Gazprom has an agreement to continue shipping its gas through Ukraine, but this only runs until 2024. Nord Stream 2 will soon replace, not complement, the streams of existing gas across Belarus, Poland and Ukraine, finally ending Russia’s dependence on former Soviet and satellite states for the transport of oil and gas to Western export markets .

Julian Lee is Oil Strategist for Bloomberg.

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