By Vladimir Shlyomin

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lexei Miller, the chairperson of Gazprom` s Board of Directors, announced that in Autumn 2005 Gazprom would start installation of the North-European backbone gas pipeline. Alexei Miller highlighted that the volume of the supposed investments into this single leg gas pipeline project would amount to approximately 2 bln. Euro (the whole project is estimated at US$5.7 bln.), with the volume of natural gas to be supplied along this route exceeding 20 bln. cubic meters of gas a year. "This will be new gas under new long-term contracts. This gas will never be diverted to any other gas supply routes," – says Alexei Miller.
The course of the pipeline will cross the aquatic area of the Baltic Sea from the town of Viborg down to the German seashore (in the vicinity of the town of Greifswald). The new gas pipeline implies installation of a branch pipeline to supply gas to Finland, Sweden, Great Britain and some other countries.
The Yuzhnorusskoie gas field located in the the Yamalo-Nenets Autonomous District has been chosen as a resource base for supplying gas along the North European route. Natural gas reserves of this gas field are estimated at more than 1 trillion cubic meters of gas, including 700 billion cubic meters of gas in proven reserves and 500 billion cubic meters in recoverable reserves. According to Alexei Miller his company intends to invest about 1 billion Euros into development of this gas field.
Alexei Miller and Jürgen Hambrecht, the chairman of the BASF` s board, have a portfolio agreement under which BASF Wintershall shall get a 49% stake in the joint venture to be established specifically for the North-European gas pipeline installation project. In addition, BASF shall exchange its 15% stake in Wingas, a BASF subsidiary, for a 50% interest in the Severneftgasprom joint stock company, which owns the license for development of the Yuzhnorusskoie gas field. In the opinion of analysts with this gas pipeline project in place Gazprom will step up its stake from 35% up to 50% less one share in WINGAS GmbH, a joint venture for selling natural gas in Europe.
The North-European backbone gas pipeline installation project has been discussed since 1997 as an alternative route for gas supplies to Germany, Scandinavian countries and Great Britain bypassing the existing gas supply routes through Ukraine and some countries in Eastern Europe. In 2002 Gazprom` s Boards of Directors approved a set of measures and time schedule for implementation of the project. Over the last two and a half years senior members of the company have met regularly with representatives of E.ON Ruhrgas incorporated into BASF Wintershall, Shell (Great Britain/Netherlands), Hydro (Norway), Total (France) and Gaunie (Netherlands), with an agreement of intent being signed with all the representatives. Thus, in April at the Hanover Industrial Fair the head of Gazprom and the leader of BASF AG, in the attendance of Russian President Vladimir Putin and German Chancellor Gerhardt Shreder, signed a portfolio agreement on cooperation.
When asked why it was that BASF subsidiaries were chosen by the Russian gas monopolist as its partner a spokesperson for Gazprom explained: "BASF has dealt with us both in Russia and Germany. They undertake construction work and we pay them in gas. This method of partnership is absolutely fine with us."

However, nobody excludes the participation of other partners in the project. A set of meetings was held with chairpersons of Boards of Å.ON AG, Å.ON Ruhrgas, AG Wulf Bernotat and Burckhard Bergmann. Summarizing results of the meetings it was announced that Å.ON would proceed with negotiations for their involvement in the North-European backbone gas pipeline installation project.
However, there are still some mute points in the relationship between E.ON and Gazprom, including an issue relating to the gas pipeline itself, the strategy on E.ON` entering the Russian energy and fuel market and in particular the standing of E.ON with respect to gas supplies to Ukraine. Wulf Bernotat, the head of E.ON, stated that in his opinion the existing instability in the European gas market was in particular due to the Russian-Turkish gas relationship. Moreover, in contradiction with Gazprom` s interests, today E.ON, NAK Naftogas of Ukraine and PNG & G have of Poland started negotiations on the possibility of establishing a joint venture in trading gas of non-Russian origin.
It is no secret that Gazprom has considered the North-European backbone gas pipeline as a reliable way to avoid risks of nonpayments and theft of gas from the pipelines running across the territories of Ukraine, Belorussia and Poland. For the present 80% of Russian gas supplies to Europe are forwarded along this route. The proposed new gas pipeline will, of course, replace all the existing gas supply backbone pipelines and provide Russian gas traders with an effective lever to influence tough partners.
Moreover, now Gazprom` s leadership is also considering the possibility of installing a branch pipeline from the North-European backbone gas pipeline to supply gas to the Kaniningrad Area, a remote Russian enclave, to solve the problem of supplying this area with energy and fuel: due to problems with gas transit through the territories of neighboring countries the Kaliningrad Area is in a bind to the extent that sometimes heating supplies to dwelling houses are cut off when it is -20ºC outside.
It is considered that the announced volume of annual gas supplies through the North-European backbone gas pipeline is a minimum volume allowing for Gazprom` s long-term obligations on gas supplies. Alexei Miller states that Gazprom knows for sure which volumes of gas shall be supplied in 2008 and in 2010 and has long term gas supply contracts for a period until 2020.

According to Alexei Miller the new pipeline is to be put into operation in 2010. This date was approved by the gas consumers whose representatives met with the head of Gazprom in Moscow and continued their talks during his visit to Germany. As is well known, initially Gazprom announced a tougher deadline i.e. 2007-2008. However, today Gazprom` s representatives states that they see no problems with "such an insignificant" delay: "The most important thing for us is have this pipeline installed by the time demand for natural gas in Europe is high enough."

To summarize, we refer to the opinions of official representatives of some countries which are interested in the Russian gas supplies most of all:

Sir Roderic Lyne the ambassador of Great Britain to Russia:

- We expect that owing to installation of the new gas pipeline the pretty high level of mutual trade and investments which has been achieved to date will get even higher during the years to come as for the first time in history Great Britain becomes a net-importer of natural gas. The United Kingdom will buy natural gas from several countries to secure its own energy preparedness. For this purpose we have already made a number of gas supply contracts with Qatar based LNG and with Norwegian gas production companies. However, we are also considering a possibility to purchase Russian gas as well. Accordingly, the Russian and the British governments have signed a memorandum of understanding during the state visit of President Vladimir Putin to London. By signing this document the Russian and the British governments undertake to work co-jointly to implement the North-European backbone gas pipeline project. A number of British companies have already discussed the possibility of them taking part in the ambitious Gazprom project.

Dr. Hans-Friedrich von Ploetz, the ambassador of Germany to Russia, also foresees a great future for installation of a gas pipeline along the bed of the Baltic Sea: "Demand for natural gas in Europe will inevitably grow so that there will be a great need for such a gas pipeline."

In the margin:
By 2005 Gazprom` s gas supply volumes will have grown by 2 billion cubic meters of gas to total 547 billion of cubic meters.