Expanding to new horizons

Against a backdrop of global economic recovery, Dr Hooman Peimani discusses Russia's most prominent pipeline projects and their increasing supply of gas to Europe.

2021 may not necessarily be a significantly better year than the last year for the Russian pipeline industry, which did reasonably well in 2020, taking into consideration the expanding global recession. The substantially lower demand for energy – particularly oil and, to a lesser extent, gas – as a result of the extensive COVID19 lockdowns and decreasing industrial activities, on the one hand, and the uncertainty about the date of restoration of pre-pandemic normalcy, on the other, created doubt about the wisdom of investing in new pipelines when fossil energy prices were in free fall.

Piped gas prices reflected this trend to a lesser extent compared to oil ones, as, for various reasons, demand for piped gas, but not LNG, remained close to that of the pre-pandemic era during the first year of the COVID-19 pandemic. That prevented a huge reduction in their prices, as experienced by oil prices.

Against a background of a major economic recovery in the world’s largest energy consumer (China) and containing the pandemic in some of the major economies of the Asia-Pacific region (e.g., Singapore, Taiwan, Australia and New Zealand), the availability of various vaccines at the end of 2020 and the following vaccination programme against COVID-19 created confidence in restoring economic and social normalcy in the following year to require a steady incremental demand for energy, particularly oil and gas.

The co-ordinated efforts of OPEC+ countries, including Russia as the largest

non-OPEC oil exporter, to push prices up by decreasing supplies in the global markets, while the prospect for a global economic recovery was becoming more realistic, helped a steady rally for oil prices fluctuating around US$70/bbl and slightly higher prices for piped gas in early 2021.

As the world’s largest gas exporter and second largest oil exporter, Russia was the major loser of the global recession in 2020. The recession was surely triggered, but not caused solely, by the pandemic after approximately a decade of a global poor economic performance, exceptions asides (primarily China). Various US-led initiatives contracting the global economies – such as trade wars with Canada, China, India, Japan, the European Union, Russia and Turkey – and the imposition of economic sanctions on some of the world’s major oil exporters, such as Iran, Venezuela and Russia, contributed to that outcome.

In particular, the US pressure directly affected Russia’s gas exports and, therefore, its international pipeline construction. The primary case was the nearly-finished Nord Stream 2 (NS2). The project was halted in December 2019 when Swiss-based Allseas, the company laying the pipeline’s last short stretch passing through the Danish exclusive economic zone (EEZ), ended its operation, as the Trump administration threatened imposing sanctions on any company completing the project. The threat deterred all the potential pipelaying companies, forcing Russia to use its own pipelaying vessels to resume the operation in January 2021. Reportedly, work on the very short remaining part of the pipeline’s German section connecting the Danish stretch to Germany is also underway.

While Russia is determined to finish the pipeline this year and has the support of its European beneficiaries, including EU heavyweight Germany, it is uncertain whether this will actually happen, at least in the mentioned timeframe. This is due to the sustained US pressure under the Biden administration, as the continued opposition of the ten EU members (e.g. Poland) has practically ignored by the EU heavyweights backing the project (France and Germany).

Apart from its political dimension (i.e. preventing further expansion of Russian influence in Europe as its single largest oil and gas supplier), opening the market for American LNG exports is the major factor behind the US opposition to NS2, which has become more diplomatic under the Biden administration in appearance, but not the content. It is reflected in US Secretary of State Antony Blinken’s late March statement on the pipeline’s fate during his CNN interview, cited by Reuters, following his earlier remark on his talk with his German counterpart to the effect of “US sanctions against the pipeline from Russia to Germany were a real possibility and there was ‘no ambiguity’ in American opposition to its construction.” Thus, “ultimately that is up to those who are trying to build the pipeline and complete it. We just wanted to make sure that our [...] opposition to the pipeline was well understood.”

The sustained commitment of all the pipeline’s consortium members, which, except for Russia, are all EU members (Austria, France, Germany and Netherlands) is, in itself, a major achievement for Russia. This reality indicates a growing schism in the Western alliance by revealing that these Western countries’ pursuit of national interests has taken precedence over their ‘ideological’ commitments to the USA.

Likewise, the completion of the Bulgarian section of the Balkan Stream and Russia’s beginning its gas exports to Bulgaria via this spur of the TurkStream in January 2021 was also a clear success for Russia. Commissioned in January 2020, the TurkStream practically replaced Russia’s South Stream gas pipeline shelved by Moscow in 2014 due to various barriers erected by the EU to its construction. Russia started feeding Turkey with gas in January 2020 through one of its pipelines while preparing for gas exports to a number of EU (e.g. Bulgaria and Hungary) and non-EU (e.g. Serbia) countries through the other, as their respective sections become operational.

Russia has also extended its eastern gas pipeline systems for domestic consumption (Sakhalin-Khabarovsk-Vladivostok) and to increase its gas exports to China via the Power of Siberia pipeline. In short, Russia’s pipeline construction has been quite active despite the ongoing pandemic, as a reflection of the importance of its energy exports to continue in the foreseeable future despite the growth of renewable energy. Within this context, the major Russian projects are discussed.

Nord Stream 2 (NS2) The NS2’s fate is uncertain because of the sustained US opposition to the project, kept in place despite the January change of US administration. Mirroring the operating Nord Stream, the joint venture of Russia’s Gazprom (51%), Austria’s OMV, Germany’s E.ON and BASF/Wintershall and Royal Dutch Shell (10% each) and France’s ENGIE (9%) consists of twinoffshore pipelines buried under the Baltic Sea’s seabed (each about 1200 km; 27.5 billion m3/y; 48 in.) passing through the EEZs of Finland, Sweden, Denmark and Germany. The gas pipeline system connects the Russian gas network near Narva Bay in the Kingisepp district of Russia’s Leningrad region, to Germany’s gas network in the northern German coast near Greifswald to feed Germany and other EU countries.

Over a year after the mentioned US threat of sanctions stopped the pipeline’s construction, the Danish Maritime Authority announced the resumption of the work on the approximately 120 km Danish section on 15 January 2021 involving “preparatory work and tests before pipe-laying started”, as reported by Reuters. Russia’s pipelaying vessel Fortuna reportedly began its work “in the construction corridor in the Danish EEZ, ahead of the resumption of the Nord Stream 2 construction” later in that month. The construction of Germany’s offshore connecting part of approximately 30 km in its Baltic Sea waters to build the NS2’s section “before its entry at the northern German coastal town of Lubmin, near Greifswald” started in the same month, according to Reuters.

Despite the continued US opposition and its associated threat of sanctions, the work on the Danish section continued in February as Reuters quoted Danish Maritime Authority on the continued “pipelaying work […] at the south and south-west of Bornholm island using the Fortuna pipelaying vessel with assistance from the

construction vessels Baltiyskiy Issledovatel, Murman and other supply vessels.” Reportedly, another Russian vessel, Akademik Cherskiy, was dispatched to the Danish waters to help the project, when the constructing consortium was quoted as announcing the completion of 94% of the pipeline project in the Baltic Sea, leaving only 138 km of it for completion. The project progressed in April when reportedly 95% of it was completed with almost 121 km left for completion.

As cited by TASS news agency and reported by Reuters in April, Russian Deputy Foreign Minister Alexander Grushko stressed Russia’s confidence in completion of the project despite US opposition by saying “we have complete confidence that the project will be completed”. In fact, he reiterated Gazprom’s Board Chairman Viktor Zubkov’s March expression of confidence in completion of the project in 2021, as cited by the TASS news agency.

Yet, in 2Q21, the NS2 completion date is still unclear.

Balkan Stream As the TurkStream’s extension designed to facilitate Russian gas exports to the EU region, the Balkan Stream is now fully operational. Fed by one of the two strings of the TurkStream, the spur connecting Turkey to Serbia via Bulgaria was completed in December 2020 to enable Russian gas exports to Bulgaria and eventually to other EU members. Being operated by Bulgartransgaz, the Bulgarian section (474 km; 47 in.; 20 billion m3/y; €1.1 billion) was completed in December 2020 followed by the inauguration of its Serbian connection (403 km) on 1 January 2021 by Serbian President Aleksandar Vučić, connecting Bulgaria to Hungary via Serbia. As planned, Hungary and Slovakia will eventually import Russian gas via the pipeline as well as the rest of the Central European countries, provided the absence of any EU opposition to the resulting increase in Russia’s share of the EU gas market when Brussels is seeking the opposite.

Replacing the ill-fated South Stream, the TurkStream, which went onstream on 8 January 2020, consists of two parallel pipelines (each 930 km, 32 in.; 15.75 billion m3/y) of which one is for feeding Turkey and another for feeding the European countries via Turkey with Russian gas. They run through the Black Sea from the Russkaya CS near Anapa, on the Russian coast, and come ashore on the Turkish coast some 100 km west of Istanbul, near the village of Kiyikoy. From there, one of them connects to the existing Turkish gas network at Luleburgaz while the other one continues to the Turkish-Bulgarian border.

Apart from its obvious importance as a gas supplying pipeline, the Balkan Stream’s significance lies in its enabling Russia to bypass particularly Ukraine, with which it has had major political and security disputes now seeking EU and NATO membership, but also Belarus having a history of political disagreements with Russia, though at a much smaller scale compared to those of Ukraine. Both neighbours of Russia have had disputes with Moscow over the volumes and fees of Russian gas supplied to them, and transiting via their territories to the EU countries.

The Nord Stream, the NS2 and now the Balkan Stream are all meant to enable Russia to bypass its two neighbours for supplying energy to the EU countries, the single major reason for the opposition of these countries to the mentioned Russian projects.

Power of Siberia Gazprom is undertaking the expansion of the Power of Siberia designed to supply consumers in Russia’s Far East and also China, as the feeder of the Russia-China gas pipeline known as the East Route gas pipeline (ERGS), which went online on 2 December 2019. Consisting of Russian and Chinese pipeline systems, the ERGS is the pipeline system for the world’s single largest energy deal made in 2014. This is the US$400 billion undertaking of Gazprom and CNPC to supply China with Russian gas (38 billion m3/y) for 30 years.

Passing through the Irkutsk and Amur Regions and the Republic of Sakha (Yakutia), the Power of Siberia (3000 km, 1420 mm, 38 billion m3/y) supplies gas from the Chayandinskoye field in the Yakutia gas production centre to the consumers in Russia’s Far East and to China. According to Gazprom, in late 2022, it will start to receive gas from another field (Kovyktinskoye) in the Irkutsk gas production center. The ongoing extension line (803 km) will link the Kovyktinskoye field to the Chayandinskoye field, as reported by OGJ.

The Sakhalin-Khabarovsk-Vladivostok gas transmission system (GTS) Among Russia’s ongoing domestic pipeline projects, the GTS’s expansion is noteworthy. The pipeline system consists of the Sakhalin-Komsomolsk-on-Amur and the Khabarovsk-Vladivostok lines (around 1350 km in total) and the Komsomolsk-on-Amur-Khabarovsk line (472 km; 700 mm). Gazprom is expanding the Komsomolsk-on-AmurKhabarovsk line in Russia’s Far East.

Towards this end, more than 300 km (48 in.) of pipes, accounting for more than “75% of the new leg’s overall length” was welded by February, as reported by OGJ. Reportedly, the new leg will supply gas to consumers in Khabarovsk Territory once it is operational and “establish new connections for consumers receiving gas via the Okha-Komsomolsk-on-Amur gas pipeline, which is slated for potential decommissioning.”

The Sakhalin-Khabarovsk-Vladivostok GTS is the first interregional GTS in eastern Russia intended to deliver gas produced on the Sakhalin shelf to consumers in the Khabarovsk and Primorye Territories, according to its operating company, Gazprom. It provides for expanding the gas grid system in the mentioned territories and ensuring the availability of gas supplies to the Asia-Pacific region.

Passing through the Sakhalin Region and the Khabarovsk and Primorye Territories, the construction of the gas pipeline (1800 km; 1220 mm; 5.5 billion m3/y) began in July 2009 and its “first start-up complex” went onstream in September 2011, to let gas flow to Vladivostok, according to Gazprom.