Russia’s Gazprom and five European business partners signed a deal Friday to double the capacity of the Nord Stream gas pipeline, which runs under the Baltic Sea to Germany, at a time when Brussels is working to decrease dependence on Russian gas.
Gazprom will own 51 percent of the joint venture, New European Pipeline AG, with E.ON, Shell, OMV and BASF/Wintershall each owning 10 percent and ENGIE holding 9 percent, according to a statement. The companies agreed to build two pipeline legs with total annual capacity of 55 billion cubic meters in 2019.
That increase in capacity is important because of continuous decline in European domestic production, said Alexei Miller, Gazprom’s CEO.
The European Commission has repeatedly said that any pipeline, north or south, serving the territory of EU member countries must respect the law, said Jakub Adamowicz, a spokesperson.
Gazprom has already run foul of the Commission, whose powerful competition arm has charged the Russian firm with abusing its dominant market position. The company faces a September 28 deadline to respond.
Russia provides about 30 percent of Europe’s gas needs, half of which goes through Ukraine. But Russia has been pushing to bypass Ukraine as a transit route, after the current contract expires in 2019. Friday’s agreement would divert a significant portion of that gas, which amounted to about €1 billion in fees last year for Ukraine’s cash-strapped economy, according to Georg Zachmann of the Brussels-based Bruegel think tank.
The deal would also complicate Ukraine’s efforts to circumvent Gazprom by buying the gas more cheaply in the re-sale markets in Slovakia and Hungary, he added.
Brussels has been trying to reduce the EU’s dependence on Russia, after the turmoil in Ukraine. Senior EU officials have been criss-crossing the bloc’s neighbors looking to set up new gas deals.
There are also questions if the EU needs any additional capacity from Nord Stream.
The bloc can import 600bcm of gas a year, and doesn’t need new infrastructure, according to EU sources. In June, the Commission said that only 57 percent of existing transport capacity from Russia is currently being used.
While Brussels is promoting energy efficiency and a push towards renewables, which are expected to put a damper on gas demand, Gazprom is confident it will increase market share by filling the gap as domestic capacity falls.
European energy giants seem to share that optimism. Gazprom also signed two asset-swap deals on Friday, one with Germany’s chemical giant BASF that will see it gain more access to gas trading and storage, and another with Austrian energy company OMV.