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Grigory Pasko: The Price of Common Sense in Pipelines

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How much does it cost to think?

The real cost of ambitious gas projects is surely unknown

Grigory Pasko, journalist

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On Lenta.Ru I read: «The cost of construction of the “Nord Stream” pipeline is measured at 7.4 billion euros, while that of “South stream” – up to 25 billion euros». I got to thinking about these numbers. And not only because one of the head employees of the company Nord Stream, Gerhard Schroeder, had cited the cost of Nord Stream at 9 bln euros ( while in the mass media there have been mentions of a number of even 12 bln euros), and his friend, Russian premier Putin, has named a cost of construction of the «South Stream» of 10 bln euros. (In so doing, Putin underscored : “And maybe, even less, considering the fall in construction materials prices.”).

I will remind readers that South Stream is planned to go along thebottom of the Black Sea from Novorossiysk (the «Beregovaya» compressorstation) to the Bulgarian port of Varna (thence – to Italy). Theunderwater stretch of the gas pipeline will have a span of 900 km.
About «Nord stream» it is known that the underwater part will extendalong the bottom of the Baltic for 1200 km. Overland – from Gryazovets (Vologda oblast) to Portovaya Bay (Vyborg rayon of Leningrad oblast) – another 917 km.

Even if we take into account that the sum of 25 bln euros includes alsothe laying of the pipeline from Varna to Alexandroupolis (Greece) andthence to Italy, still this is shorter in length than the Nord Streamroute. That is, even in this case, the northern pipeline will be longerthan the southern one by two times. How can something that is two timesshorter cost two times more?

It goes without saying that I’m not an economist and I obviously don’tunderstand something. But still: how can something like this be?

It is known that both projects – the northern Nord Stream and thesouthern South Stream – have alternatives. For example, completion ofthe second phase of the already-existing overland gas pipeline «Yamal-Europe» (through the territory of Byelorussia and Poland) will end upcosting half as much as Nord Stream – at 2.5 bln euros. (This under thecondition that the cost of Nord Stream truly is 7. 4 bln, and not a lotmore, which is more likely even taking the crisis into account).

If we speak of «South stream», it too turns out to be more than threetimes more expensive than the alternative project “Nabucco”, which theEuropean Union is preparing to realize in conjunction with the CentralAsian republics and Iran – the cost of «Nabucco» is 7.9 billion euros.

In principle, and proceeding from common sense, the financial worldcrisis ought to introduce its correctives to all these numbers. In theopinion of minister of foreign affairs of Poland Radosław Sikorski, itis precisely in consideration of the crisis that we ought to return tothe idea of completing the «Yamal-Europe» pipeline. He noted recentlythat the most effective and cheapest way to diversify deliveries of gasto Europe is the construction of a second branch of the «Yamal -Europe» pipeline. By the way, earlier Byelorussia too had proposedbuilding a «Yamal – Europe-2» pipeline to ensure reliable transit toEurope.

Instead of conclusions. Every gas project has, as a minimum, threecomponents: the political, the economic, and the environmental. I willallow myself to express my firm belief that not a single one of thesecomponents has been resolved either with the Nord or with the SouthStream. If the Nord Stream project is being supported by a series ofEuropean countries, this does not mean that the relations of Russia,for example, with the Baltic States, Byelorussia, Poland and Ukraineare going to be unclouded after this.

Russia’s rushed decision to build a second branch of the «Blue Stream»(from Novorossiysk to Turkey) is also aroused not at all by economicconsiderations: the first branch, designed to pump 30 bln cubic metersof gas per year, passed barely 10 bln in all of the year 2008. That is,it is understandable that the second branch has been conceived to spitethe «Nabucco» project.

It looks like the officially sounded estimated numbers for the cost ofthe gas projects also do not have anything in common with the realones: they are nothing more than a continuation of the politicalunder-the-carpet power games of various countries. Moreover, of all thecountries, it is precisely Russia that is trying to run faster thaneverybody else – without pausing to take a look at rational solutionsin the realm of politics and economics (about the environment we willkeep silent for now), according to the principle: the main thing is toengage in the battle, we can always think later. But this has alreadybeen : the USSR clearly lost both the arms race and the «cold» war as awhole. The lessons of the past have not, it turns out, taught anythingto those who have come out of the KGB, and who today run Russia.