Russia's Pipeline Overstretch

Market Monopolization at the Expense of Reliability

Author(s): Jonas Grätz
Editor(s): Stephen Aris, Aglaya Snetkov, Matthias Neumann, Robert Orttung, Jeronim Perovic, Heiko Pleines, Hans-Henning Schröder
Series: Russian Analytical Digest (RAD)
Issue: 113
Pages: 9-12
Publisher(s): Center for Security Studies (CSS), ETH Zurich; Research Centre for East European Studies, University of Bremen; Institute of History, University of Basel
Publication Year: 2012

The Nord Stream pipeline, which is going to reach full capacity this year, is a crucial tool for Russia's long-term influence in the EU gas market. In times of high uncertainty over future gas demand and market structure, it has the dual goal of cementing market share at oil-indexed (or in other words, high) prices, and strengthening Russia's market and political power vis-á-vis Ukraine by creating overcapacities for gas trans¬port to the EU. Although not the most efficient transport route to the EU market, the pipeline may realize modest gains in transport efficiency in comparison with the Ukrainian corridor as production moves to the Yamal peninsula. Nord Stream is thus hugely advantageous for Russia, while it is not of particular value from an EU perspective. Meanwhile, the proposed South Stream pipeline is less efficient in terms of trans-port economics. Russia's strategy to construct new costly undersea pipelines is eroding Gazprom's reliability and competitiveness: Investment resources are being diverted towards long-term potential benefits of market monopolization, while investments of immediate necessity in storage and production are being postponed.

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