/ 8 September 2005

Germany, Russia seal $5bn gas pipeline deal

Russian energy giant Gazprom and German firms EON and BASF signed a deal on Thursday to build a $5-billion pipeline linking the Russian Federation and Germany, at a ceremony attended by President Vladimir Putin and Chancellor Gerhard Schroeder.

The North European Gas Pipeline will allow the world’s largest gas reserves to be piped directly to the western European market.

But its route has enraged Poland and Baltic countries which stand to lose out on lucrative fees because it bypasses their territory.

“This is truly a historic day,” Schroeder said. “I am grateful for this strategic cooperation between Germany and Russia.”

The four-billion euro ($5-billion) agreement is a key plank in Schroeder’s efforts to lessen Germany’s dependence on oil — Russia already supplies 32% of Germany’s energy requirements.

The signing ceremony was to have taken place in October, but was moved forward in the face of opinion polls showing Schroeder, who is a close friend of Putin, will be ousted in a general election on September 18.

Stretching for 1 200km under the Baltic Sea from Vyborg near St Petersburg to Greifswald on the northeastern coast of Germany, the pipeline is scheduled to go into operation in 2010, initially delivering 27,5-billion cubic metres a year which will rise to 55-billion.

Gazprom will control 51% of the venture while EON, the leading German energy group, and BASF, the world’s biggest chemicals maker, will hold 24,5% each.

The pipeline will help meet Germany’s growing gas needs — about half of all German homes are heated by gas and three-quarters of new homes have gas heating.

The route of the pipeline has drawn protest from Ukraine and Poland which currently receive transit fees from Gazprom for allowing its pipelines to cross their territory.

They also wanted the pipeline to cross their territory to ensure that Russia will not apply an energy blockade against them or drive prices higher.

Polish Prime Minister Marek Belka said on Thursday that the deal between Germany and Russia was a show of force by Putin that poses problems for Poland.

“We are not very happy about this situation. For us, it poses a huge problem that we will have to monitor,” Belka said on the sidelines of the 15th Economic Forum in the southern Polish spa town of Krynica.

“It would appear to be more of a political problem than an economic one, a show of force on the part of President Putin and Russia,” Belka added.

“According to experts, building a gas pipeline under the Baltic Sea will be much costlier than building one across Poland.”

Poland, in common with much of Europe, relies on Russia for most of its oil and gas supplies.

Polish President Aleksander Kwasniewski said on Wednesday that he hoped German conservative leader Angela Merkel, who is likely to take over from Schroeder as chancellor, would stop the project if she takes office.

Merkel’s main foreign policy advisor, Wolfgang Schaeuble, has criticised the pipeline, saying it was a “catastrophe” that Poland and Baltic states had not been involved in its planning.

Lithuania reiterated its opposition on Thursday, with former head of state and current Euro MEP Vytautas Landsbergis saying the project was “a bid to change the political map of Europe”.

But Schroeder defended the pipeline in an interview with business daily Handelsblatt on Thursday, saying it was “a project on a European dimension” which other countries could join.

Putin has also insisted that the pipeline was solely an economic, not political, deal.

The International Energy Agency (IEA) has warned that while Germany is decreasing its reliance on oil, it could be becoming over-dependent on Russia.

In the event of a diplomatic crisis between the two countries, German could find its supply disrupted, IEA chief economist Fatih Birol said last year. – AFP