Gazprom Signs Preliminary Deal to Expand Gas Pipeline to Germany

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The FINANCIAL — Russia’s state gas firm OAO Gazprom signed a preliminary deal with three European companies to expand a pipeline to Germany, aiming to cement the company as the European Union’s main gas supplier even as it faces antimonopoly charges there.

The tentative agreement was the flagship deal signed on June 18 at the annual St. Petersburg International Economic Forum, where Russian officials touted participation by foreign executives as a sign the country hadn’t been isolated by Western sanctions, according to Nasdaq.

Gazprom said the planned project with Royal Dutch Shell PLC, Germany’s E.ON and Austria’sOMV AG would double the capacity of the Nord Stream pipeline that runs from Russia to Germany via the Baltic Sea and was opened in 2011. The companies gave no time frame for the expansion, but Gazprom said they would form a consortium, with the Russian company holding 51%.

The proposed expansion is Gazprom’s latest attempt to reduce its reliance on Ukraine for transiting gas to Europe, its most lucrative market. Disputes between Ukraine and Russia have caused cuts in gas deliveries to Europe twice in recent years.

Gazprom Chief Executive Alexei Miller said the proposed expansion would make deliveries to Europe, which receives one- third of its gas imports from Russia, more secure and reliable.

But some analysts and Western officials questioned the proposed expansion’s viability.

Gazprom has faced increased regulatory pressure in recent years in Europe. The EU filed charges against Gazprom in April, saying the company abused its dominant position in some eastern and southern European countries’ markets. Gazprom could face a multibillion-dollar fine over the charges, which it denies.

Late last year, Gazprom canceled another pipeline project, called South Stream, that was to deliver gas to southeastern Europe, after the EU blocked construction on competition grounds.

Any further pipelines will face regulatory hurdles under EU competition legislation. The current Nord Stream pipeline is running at around two-thirds capacity due to EU competition rules. Gazprom spokesman Sergei Kupriyanov said the company aimed to resolve such questions through talks with the EU.

Gazprom is also aiming to build another pipeline, called Turkish Stream, to southeastern Europe under the Black Sea, then via Turkey.

The EU is aiming to reduce reliance on Russian gas, so “it makes no sense to build both projects,” said Alexander Kornilov, an energy analyst at Alfa Bank in Moscow.

The decision to try to expand Nord Stream “indicates that they understand that the four-line Turkish Stream by 2020 is not going to work and that they need other options,” said Jonathan Stern, a senior fellow at the Oxford Institute for Energy Studies.

“Gazprom needs some kind of backup project in case Turkish Stream fails,” Mr. Kornilov said.

Still, the Greek and Russian energy ministers are set to sign a memorandum Friday proposing construction of a pipeline that would feed gas from Turkish Stream into Europe.

Russia’s energy minister Alexander Novak said Thursday that Russia and Turkey would sign an agreement on the construction of the first line of Turkish Stream by the start of July.

Gazprom spokesman Mr. Kupriyanov said expansion of Nord Stream would double its capacity to 110 billion cubic meters of gas a year. Along with Turkish Stream, that would allow Russia to stop sending gas via Ukraine, he said. Gazprom delivered 146.6 BCM of gas to Europe last year.


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