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. Last Updated: 07/27/2016

Gasunie Signs up for Nord Stream

UnknownGasunie chief executive Marcel Kramer hugging Gazprom's Alexei Miller during a meeting at the Kremlin on Tuesday.
VYKSA, Nizhny Novgorod Region -- Dutch energy firm Gasunie on Tuesday signed a long-awaited deal to take a 9 percent stake in the controversial Nord Stream pipeline, just as the project operator warned that construction would start later than planned.

The signing of the deal between Gasunie and Gazprom, which owns a majority stake in Nord Stream, was overseen by President Vladimir Putin and visiting Dutch Prime Minister Jan Peter Balkenende at the Kremlin.

The pipeline project's CEO, Matthias Warnig, on Tuesday warned that the start of construction would be put off by six months until July 2009 but said the first gas was still on target to be shipped by the end of 2010.

The project has run into major opposition on both political grounds and environmental concerns. With construction starting later, work on the politically sensitive project will have to speed up, Warnig said.

"We optimized ... the time needed for construction," he said.

Warnig, a former Dresdner Bank executive who is a close ally of Putin's, was speaking during a Nord Stream press trip to a factory in the Nizhny Novgorod region that will supply pipes to the project.

The Gasunie deal also gives Gazprom the option to buy a reciprocal 9 percent stake in the much smaller BBL pipeline, which connects the Netherlands to Britain, but details on value and a time frame were scarce.

Nord Stream is due to bypass traditional transit countries like Ukraine and Belarus, directly connecting Gazprom to its West European customers by way of a 1,200-kilometer route under the Baltic Sea.

The pipeline has faced numerous delays as well as criticism from the countries whose territory it will pass through and bypass. Cost estimates for its construction, in environmentally and politically sensitive waters, stand at 5 billion euros ($7.2 billion), but experts believe that the true cost could be much higher.

The pipeline is key if Gazprom is to boost its gas deliveries to Europe in the face of ever-rising demand.

Following the expansionist energy strategy crafted by Putin, the deal between Gazprom and Gasunie includes reciprocal deals that will give Russia's gas giant direct entry into the European market.

Yet the 9 percent stake in the larger and more expensive Nord Stream does not match up with the 9 percent stake in the Dutch-British pipeline offered to Gazprom, prompting Russian media to speculate that another, as yet unpublicized, deal may have also been struck.

Gasunie is planning on investing about 750 million euros ($1.1 billion) for its 9 percent stake in Nord Stream, Gasunie CEO Marcel Kramer said in an interview in Moscow. A 9 percent stake in BBL, a 230-kilometer pipeline that cost about 500 million euros to build, falls well below that value.

Gasunie's investment would peg the cost of the entire Nord Stream project at 8.3 billion euros ($12.1 billion).

"Though [the stakes are] different in size, it is meant to be seen very much as reciprocal," Kramer said. He refused to provide details on the deal and did not reveal how long Gazprom had to exercise the option to buy into BBL.

Gazprom holds a 51 percent stake in Nord Stream. For Gasunie to enter the project, German partners E.On and Wintershall each reduced their 24.5 percent stakes by 4.5 percent.

The first branch of the pipeline is due to run from the port of Vyborg to Greifswald in Germany, cutting out transit countries that have recently been involved in pricing spats with Gazprom.

The consortium will delay construction as it needs more time to win permission from Germany, Sweden, Finland and Denmark, whose waters the pipeline will traverse, Warnig said. An official environmental study of the proposed pipeline will be submitted for approval to the five countries in the next few weeks, he added. Both Sweden and Finland have asked Nord Stream to consider alternative routes.

During the flight from Moscow to Nizhny Novgorod on Tuesday, Warnig said Nord Stream was "in a constant dialogue ... to convince the Swedish authorities that we will minimize environmental impact. We are confident that this way we will get their permission."

Finland has asked Nord Stream to investigate whether Estonian waters would be a better choice because they are calmer. Estonia recently rejected Nord Stream's request for a survey.

"We are disappointed by this decision," Warnig said in his first public comments on the matter. "It's a decision that is at least not in the interests of the environment."

Despite lacking permission to begin construction, Nord Stream has already begun contracting for materials. On Tuesday, it agreed to buy pipes from United Metallurgical Company, or OMK, to lay one-quarter of the pipeline, and it plans to sign a contract Thursday to buy the rest of the pipes from Germany's Europipe, Warnig said.

Warnig conceded that Nord Stream was taking a risk by committing itself to the deals before getting clearance to go ahead with construction.

In total, Nord Stream is investing more than 1 billion euros in the pipes to build the first pipeline, the company said in a statement. It will hold a separate tender to buy pipes for the second branch, due to be built by the end of 2012, Warnig said.

Nord Stream is seeking to supply Europe with 27.5 billion cubic meters of gas per year from 2010 and 55 bcm from 2012, when the second branch begins to operate.

Warnig warned concerned states not to let political and environmental worries overshadow Europe's need for gas. "In the interests of secure supplies ... all member states should at least tolerate our project," he said in a speech at the Vyksa Steel Plant before signing the pipe contract. "From our point of view that does not seem much to expect."

Balkenende echoed the sentiment during a news conference after lengthy talks with Putin at the Kremlin.

"When we talk about security of energy supply we do that in an interdependent world, and Russia is an important player. That is why we are in talks about mutual responsibility," he said.

Balkenende said that in addition to energy cooperation, he and Putin also discussed issues of democracy and human rights, as well as Kosovo and Iran.

Balkenende, on his first official visit to Moscow, said he did not raise the question of bankrupt oil firm Yukos. A Dutch court last week ruled that a Dutch-registered Yukos subsidiary was improperly sold off by a Russian court-appointed bankruptcy receiver.

Balkenende said he was "not in a place to intervene."

Dutch Foreign Trade Minister Frank Heemskerk, who accompanied Balkenende, said the delegation had yet to raise the question of Royal Dutch Shell's hopes to win further projects in Russia, particularly on the Yamal Peninsula.

Shell holds cooperation agreements with state-controlled energy firms Gazprom and Rosneft, both signed after the British-Dutch firm lost its majority stake in its flagship Sakhalin-2 project late last year.

Balkenende and Heemskerk were accompanied by 16 Dutch business leaders, including Shell CEO Jeroen van der Veer and Unilever chairman Michael Treschow. They were due to attend a private dinner with Putin late Tuesday.

Heemskerk said two other deals were signed Tuesday. Dutch mail carrier TNT signed a memorandum of understanding with Russian Post, and Dutch firm Custers signed a deal with the Central Bank to destroy old banknotes.

Miriam Elder reported from Moscow.