Russian, EU leaders inaugurate Nord Stream pipeline

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Russian President Dmitry Medvedev will attend today's (8 November) launch ceremony in Germany of the Nord Stream gas pipeline, which will bring Russian natural gas to Western Europe directly under the Baltic Sea. Experts warned however that the pipeline would run at only half capacity in the initial period.

Medvedev will attend the ceremony alongside his host, Chancellor Angela Merkel, Dutch Prime Minister Mark Rutte, French Prime Minister François Fillon and EU Energy Commissioner Günther Oettinger.

During his visit, the Russian leader is also expected to meet Germany's President Christian Wulff and discuss trade, economic, energy and security cooperation, as well as prospects of visa-free travel between Russia and the EU, the Russian press reported.

The €7.4-billion, 1,220-kilometre pipeline aims to deliver 55 billion cubic metres of gas per year, linking Russia's Vyborg, a city 130 kilometres northwest of St. Petersburg, to the German city of Greifswald.

Constructed under the Baltic Sea, the pipeline will run past the coasts of Finland, Sweden and Denmark (see 'Background').

The project was heavily backed by former German Chancellor Gerhard Schröder, who now chairs the Nord Stream shareholders' committee.

The ceremony will taker place in Lubmin in northern Germany, a place where Nord Stream is connected to the German grid trough the OPAL pipeline, which links to eastern Germany. Another branch, the NEL pipeline, which is to deliver Nord Stream gas to the Western part of the country, is still under construction.

Nord Stream includes two parallel lines, each with a capacity of 27.5 billion cubic metres of gas a year. The second line will be completed in 2012. Laying a third line is technically possible, but needs to be commercially viable and requires shareholder approval.

Matthias Warnig, managing director of the German-Russian gas pipeline consortium, was quoted by Deutsche Welle as saying that it would take between 14 and 15 years to recoup the expense – if Nord Stream works to full capacity.

Under the terms of the Nord Stream business agreement, Gazprom-Export pays for the exclusive right to transport 55 billion cubic meters of gas annually, regardless of whether it does so or not.

According to Warnig, the pipeline has so far received orders to deliver more than 22 billion cubic metres annually, less than half its capacity.

But Vladimir Feygin, president of the Russian Institute for Energy and Finance, said it was a "typical situation" that such huge pipelines are built when there are long-term contracts in place that ensure they can run at least half capacity.

The Nord Stream natural gas pipeline aims to bring Siberian gas directly to Germany under the Baltic Sea, bypassing Russia's 'problematic' neighbours such as Ukraine.

The pipeline was awarded its final building permit on 12 February 2010 and its construction started in April 2010.

Nord Stream is designed to transport up to 55 billion cubic metres of gas per year, enough to supply more than 25 million households. 

Nord Steam is a joint project of four major companies: Gazprom, BASF/Wintershall Holding AG, E.ON Ruhrgas AG and N.V. Nederlandse Gasunie. Gazprom leads the consortium with a 51% stake. 

The pan-European nature of the pipeline is underscored by its status as a project under the EU's Trans-European Networks energy guidelines. This status was confirmed in 2006.

The total budget of Nord Steam is €7.4 billion, which makes it one of the largest privately financed infrastructure projects ever attempted. 

On 1 March 2010, in the presence of French President Nicolas Sarkozy and his Russian counterpart Dmitry Medvedev, GDF Suez and Gazprom signed an agreement in Paris, formalising the participation of the French utility in the Nord Stream pipeline project.

The Nord Stream project is controversial in several countries, including Sweden, Poland and the Baltic states.

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