analysis | European pipelines


This has cut into both base load and peak load demand – the most profitable for gas power generation. Moreover, the price of coal has fallen at a time when gas and oil prices have risen, leading to a “dash for coal” in power generation in some countries. As a consequence, many gas power stations are on short- term working or are being mothballed and gas power utilities experiencing a declining share of a contracting market have put plans on hold for new plants. Un- changed, this could reduce the need for gas imports from Russia, and hence the additional pipelines. Furthermore, Europe’s climate and environmental policies aim to increase the contribution of renewables, throwing further doubt on the need for Russian pipeline expansion. And potential future exports of LNG from the US shale gas industry to Europe could depress Euro- pean gas prices by at least 3%, raising more questions over the long-term viability of many of the new pipelines into Europe. European shale gas production in Poland, Germany, France, Italy and the UK, should it be realised, would further depress imported gas demand. This combination of long term weakness in demand


for gas together with the prospect of potentially growing shale gas supplies raises questions over the viability of some of the planned new pipelines. In 2012, Gazprom exported 203.22 bcm of Russian


Below: Map showing some of the key proposed pan-European natural gas pipeline axes. Source: Inogate/EC


gas to Europe. Current pipeline plans will raise Russia’s export capacity to 380bcm, according to Rovshan Ibrahimov, head of international relations at Qafqaz University, Azerbajan(4)


. According to Carlo Malarcarne, CEO of SNAM (the


Italian natural gas infrastructure company): “It is difficult for suppliers to sign long-term contracts with Europe because there has been an over-supply of gas since the financial crisis”. Professor Jonathan Stern, at the Oxford Institute for


Energy Studies says: “Gas demand is in free-fall virtually all over Europe; what new capacity do we really need?”


Many of these gas pipeline projects have been


delayed due to difficulties in finding sufficient capital to commence construction. Traditionally, banks have accounted for around 75% of infrastructure funding with the rest coming from governments, sovereign wealth funds, investment and pension funds. The financial crisis has reduced the amount of available funding and increased its cost. Even Gazprom, with political backing from the Russian state, relied for a third of the Nord- stream pipelines funding on international shareholders within the Nord Stream consortium: Gazprom, Winter- shall, E.ON, Ruhrgas and Gasunie. Half of the remain- der came from commercial bank lending, and the rest from export credit agencies(5)


. Funding difficulties are likely to increase when


European banks raise their capital ratio requirements at the end of this year. To add to the difficulties of fundraising, Stern predicts that some of the projects may never recoup their investments. “Nobody wants to invest in a project which is not going to at least break- even within a reasonable time,” he points out. The Nordstream pipeline project is designed to


directly link Russia, via the Baltic Sea, to the heart of the European Union. Once complete, it will consist of four parallel pipelines running from Vyborg near St Petersburg to Lubmin on the North East German Baltic coast. Phases 1 and 2 of this 1224 km pipeline network were completed in 2012 at a cost of €7.4bn(6)


. It is


expected that Phases 3 and 4 will cost a similar amount. Once fully complete, Nord Stream is designed to transport 55 bcm of Russian gas every year to central and Western Europe. The design of the route for Nord Stream has not been without difficulty. Planners have had to bear in mind the existing complex network of subsea electrical cables, oil and gas pipelines that criss-cross the Baltic seabed. In addition, the seabed is not flat and in parts there are significant obstacles, ranging from natural rocky outcrops to man-made hazards such as unex- ploded munitions. As a result, the seabed route has had to be adjusted several times(7)


. At present, Nord Stream


is conducting a series environmental and social impact studies for Phases 3 and 4 to be submitted for approval to regulators in the Baltic States. The building of Nord Stream 3 and 4 is likely to use the same construction infrastructure as for earlier stages. The completed project will use the Portovaya compressor station in Vyborg near the Gulf of Finland for front-end gas boosting. In 2010, Ukrainian pipelines accounted for 80% of


18 PIPELINE COATING | May 2013


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