The Nord Stream Pipeline – Bringing Russian Natural Gas to Europe

Nord Stream Route Map

Nord Stream Route Map – From Nord Stream AG (

Built and operated by Nord Stream AG, the Nord Stream subsea offshore natural gas pipeline system runs 1224 kilometres from Vyborg, Russia, to Lubmin, Germany.  The twin pipeline system aims to maintain one of Russia’s long-standing objectives, which is to supply Europe with a secure and reliable source of natural gas.  On the Russian side, the Nord Stream is connected to Gazprom’s Gryazovets-Vyborg pipeline, while on the German side, the Nord Stream is connected to the OPAL and NEL pipelines.

  • The first of two parallel lines was put into operation in November, of 2011 with an annual transport capacity of 27.5 bcm of natural gas.  The second line was completed on the 28th of June, 2012, and will enter operation in Q4 of 2012.  The ‘twin pipelines will have the capacity to transport a combined total of 55 billion cubic metres (bcm) of gas a year to businesses and households in the EU for at least 50 years’ (“The Pipeline”).
  • ‘The Nord Stream route crosses the Exclusive Economic Zones (EEZ) of Russia, Finland, Sweden, Denmark and Germany, as well as the territorial waters of Russia, Denmark, and Germany’ (“The Pipeline”).  International law affects EEZ’s and territorial waters differently (see the “International Law” section below).
  • The Nord Stream Pipeline will be remotely monitored and controlled from the Nord Stream headquarters in Zug, Switzerland.
  • The Nord Stream consortium is owned by OAO Gazprom (51%), Wintershall Holding GmbH (15.5%), E.ON Ruhrgas AG (15.5%), N.V. Nederlandse Gasunie (9%), and GDF SUEZ (9%).

Price Economics

The western-European market is willing to pay a price that is much higher than that of the substantially subsidized natural gas that is sold to Russians on the Russian market.  In a very basic sense, to have Russian natural gas production in excess of what is currently exportable to ‘high-paying’ countries is to have a decrease in the potential revenue for Gazprom, among other firms.  The incentive is there for Russia to ensure maximum Nord Stream pipeline capacity utilization, and to build upon the Nord Stream system in the future to allow for greater capacity.

One problem that may surface stems from the domestic Russian natural gas market.  Gazprom has been pushing, for a while now, to increase prices due to the fact that the current average, per unit costs of production tower over the per unit prices that are seen domestically.  Russian exports are the sole profit-makers here.   Since the government has actually granted Gazprom the right to increase the price point by a certain percentage annually, Gazprom stands to slowly lose the incentive to prefer exports over imports assuming, naturally, that domestic prices rise at a higher rate than those in Europe.  As more natural gas is extracted from increasingly northern, Arctic-marine areas, the average costs of production are going to be on the rise as well.  These could all impact Russia’s future willingness to supply Europe with natural gas down the road.

The Nord Stream Route is Important for European Confidence

Much of the current European uneasiness toward Russian natural gas imports stems from the ongoing conflict that exists between Russia, and the pipeline-transit states of Belarus and Ukraine.  It is important to recognize that Ukraine has blocked the transit of Russian gas to Europe in the past.  The Nord Stream system thus stands to become an alternative delivery method that can be relied upon to deliver natural gas to Europe.

Gazprom CEO Aleksei Miller said it best when addressing both the Nord Stream and South Stream pipelines at the European Business Congress (EBC) in Portorož, Slovenia;

These pipelines would eliminate the dangerous dependence on transit monopoly by
Ukraine, which in 2006 and 2009 respectively blocked access to the export gas en
route from Russia to European markets. After the new pipelines come into
operation our exports will gain more reliable delivery routes and, no less important,
additional flexibility. This will enable to significantly increase the security of
supply of natural gas to European consumers, to which our company attaches
the greatest importance. Once and for all Gazprom will be relinquished of
arbitrarily imposed responsibility for the consequences of others’ decisions, which
resulted in blocking exports of our gas. (Miller, A. 2012)

The flexibility that Miller speaks of may come in the form of pipeline extensions.  The current line touches Germany where a future branch might touch both Scandinavia and Britain who have already expressed interest.

International Law

The following is a non-exhaustive list of the main articles and provisions of international law that apply to the construction, maintenance, and use of the Nord Stream pipeline system.

Pipelines within a state’s territorial waters

  • Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS) defines the ‘continental shelf of a coastal State [as] the sea-bed and subsoil of the submarine areas that extend beyond its territorial sea’ (UN 1982).
  • Article 2 of the UNCLOS dictates that ‘[t]he sovereignty of a coastal State extends, beyond its land territory and internal waters and, in the case of an archipelagic State, its archipelagic waters, to an adjacent belt of sea, described as the territorial sea’ (UN 1982).

From these articles, one can see that a state has sovereignty over it’s territorial sea.  Nord Stream AG therefore requires a different legal process in dealing with Russia, Denmark, and Germany than it does in dealing with Finland, and Sweden.  As can be seen from the map above, it is very fortunate that there happens to be a space between the territorial seas of Finland and Estonia.  This will have saved Nord Stream AG a great deal of time and money.

Pipelines within a state’s EEZ

  • Article 79 of the UNCLOS grants all states the right ‘to lay submarine pipelines … on the continental shel[ves] [of other states].’  An affected (transit) ‘coastal State may not impede the laying or maintenance of … pipelines’, but is reserved the right to consent to ‘the delineation of [transit] pipeline[s]’ and to ‘take reasonable measures [for the] prevention, reduction and control of pollution from pipelines’ (UN 1982).

Service stations built within a state’s EEZ

  • Article 60 of the UNCLOS grants the coastal state ‘the exclusive right to construct and to authorize and regulate the construction and operation and use of … installations and structures’ and ‘exclusive jurisdiction over such … installations and structures’ (UN 1982).

Initially, there was to be built an intermediate service station platform within the EEZ of Sweden.  Due to Article 60 of the United Nations Convention of the Law of the Sea (UNCLOS), Sweden would have had exclusive jurisdiction over the station, along with the right to construct and operate it.  In 2008, attempting to minimize bureaucratic and legal issues, Nord Stream confirmed that specially-designed inspection tools were available that would have been able to inspect the entire pipeline span without a need for the service platform.  The intermediate service station was thus no longer needed and Article 60 needed not apply.

Environmental impact assessments

  • The Convention on Environmental Impact Assessment in a Transboundary Context dictates the requirement of an Environmental Impact Assessment (EIA) for proposed activities ‘that [are] likely to cause a significant adverse transboundary impact’ (UN 1991)



Barents Sea Oil / Gas License Blocks and Fields – Norway – 2012 Map

Norway Barents Sea Active License Block Map

Above is a map of the Barents Sea, Norway.  Active and inactive production licensing blocks are shown along with the illustrated Norway – Russia maritime delimitation agreement that entered into force on the 7th of July, 2011.

Norwegian Production Licensing Rounds – Currently in Round 22

The next licensing change, with the exclusion of relinquishments and share transfers, will take place in Q1 of 2013 as Norway awards production licenses as part of the 2012 APA (Awards in Predefined Areas), for which the application deadline is the 6th of September, 2012.  The APA round applies to mature sections of the continental shelf that are both understood geologically and situated near developed infrastructure.

The succeeding change will take place in mid-2013 as the Norwegian Government awards new production licenses for the general 22nd licensing round, for which the application deadline is the 4th of December, 2012.

For a licensing round history dating back to 2000, visit ‘Licensing Rounds on the Norwegian Continental Shelf‘ from the Norwegian Ministry of Petroleum and Energy.

Fields – Oil, Gas, and Condensate

Snøhvit – Discovered in 1984 and on stream in August, of 2007, Snøhvit is the only developed field within the Barents Sea, Norway.  The field encompasses seven different production licenses, and is lumped in with two other deposits, the Askeladd and Albatross structures.  Gas from the Snøhvit field is piped through a pipeline (see map) to the Melkøya Island LNG liquefaction plant in Hammerfest, Norway.  The resultant liquid natural gas (LNG) is transported to markets around the world via LNG tankers.

  • Under sound production levels, a loaded 150,000 m3 LNG tanker will depart from Hammerfest every 5 to 6 days.
  • Separated CO2 is transferred back to the Snøhvit field to be re-injected into a porous sandstone layer called the Tubåen formation located 2.5km below the seabed.  It is worth noting that this carbon capture program is being financed, in part, by the EU as all is carefully being monitored to assess the viability of similar projects for the future.
  • As of 31.12.2010, recoverable reserves were estimated to be 149.8 billion sm3 gas, 5.8 million tonnes natural gas liquids (NGL)*, and 16.1 million sm3 gas condensate.
  • Ownership – Statoil (36.79% operating share), Petoro (30% share), Total E&P Norge (18.4% share), Gaz de France (12% share), and RWE Dea (2.81% share)

Goliat is currently being developed with production set to begin in Q4 of 2013.

  • Recoverable oil reserves are estimated to be 28 million Sm3 (174 million barrels), while recoverable gas reserves are estimated to be 8 billion Sm3.  Field life is estimated to be 15 years.
  • Ownership – Eni Norge AS (65% operating share), and Statoil Petroleum AS (35% share)

*Natural Gas Liquids (NGL) are mixtures of liquid hydrocarbons such as butane, condensate, ethane, and propane.  This is not to be confused with Liquid Natural Gas (LNG).


  • Statoil – Snøhvit –
  • Norwegian Petroleum Directorate – Snøhvit – 04, July, 2011 –
  • Ministry of Petroleum and Energy – Licensing Rounds of the Norwegian Continental Shelf –

Map Sources

  • Norwegian Petroleum Directorate – Production License Block Information – July, 2012 –

Faroe Islands Maritime Boundary / Oil and Gas Licenses 2012 Update

A lot has changed since my last Faroese post in Dec, of 2011 (read Faroe Islands Exclusive Economic Zone / Oil and Gas Licenses).   Many licenses have been relinquished by several oil & gas firms.  These include the south-eastern L002, L005, L007, L012, L015, and L017 blocks.

Of the firms that are left, Statoil remains dominant with the rights to 100% of L010, and 50% of L006, L008, L009, and L011 (view map above).  Valiant Petroleum holds 100% of L013, and 60% of L014.  ExxonMobil holds 49% of L006, and 50% of L009 and L011.  Atlantic Petroleum, Dong Energy, and OMV are minority players.

Open Door Licensing

The Faroese government has taken on a new strategy with the intent to secure the interest of foreign operators.  The new ‘Open Door’ policy seems to be an attempt to break down one of the current barriers to entry.

From Jarðfeingi, of the Ministry of Industry – The Faroe Islands

Areas which previously have been open for licensing, including relinquished licenses, are included in the area where it is possible to apply for licenses out of round.

The ‘Open Door Area’, now literally up for grabs, follows the current south-eastern maritime boundary contour that circles the mainland  ending at 10 degrees W.  What is unique about the open door policy, is that there need not be competing bids to win a block.  A lower offer ‘could’ take it all.

Any Potential Down the Road?

There has only been one real oil discovery within Faroe waters to date.  This took place in 2001, but was deemed uneconomical.  Drill data from the ‘Marjun” prospect has been re-evaluated, and has been taking on new light.  It would be a far stretch to deem this the  mother lode oil equivalent, but it is certainly a prospect.

Now ten years later the Jarðfeingi people together with foreign experts have looked at the Marjun drill data once again and it has emerged that the reservoir capabilities may not be all that poor as previously thought after all.
This could possibly reinvigorate the only discovery made in Faroe waters to date.

Heri Ziska – Head of Geoscience Dept. at Jarðfeingi – 12 of May, 2012


Three Applications for Iceland’s Second Licensing Round

Iceland’s second offshore exploration and production of hydrocarbons licensing round came to a close on the 2nd of April, 2012.  The National Energy Authority ofIceland announced the following results:

  • Eykon (unregistered Icelandic company)
  • Faroe Petroleum (website) and Islenskt kolvetni ehf.
  • Valiant Petroleum (website) and Kolvetni ehf.

Iceland’s National Energy Authority is to have the applications processed by the end of November, 2012.

Some Information About the Applying Firms

The Icelandic magazine publisher, (Iceland Review – Quarterly, Atlantica – 6 issues per year), goes into the shareholder structure of those firms that have applied for blocks within the Dreki Area.

Kolvetni is owned by Jón Helgi Guðmundsson, the majority owner of the hardware chain store Byko, and his business partner Gunnlaugur Jónsson, who hold a combined 50 percent share, the engineering firm Mannvit, which has a 25 percent share, and Norwegian businessman Terje Hagevang, who holds the remaining 25 percent.

Hagevang is CEO of British oil company Valiant and used to run Sagex, a Norwegian company, which made tenders for oil exploration in the Dragon Zone in 2009. Jón Helgi and Gunnlaugur both have shares in Valiant.

Íslenskt kolvetni is owned by the engineering firm Verkís, Icelandic oil company Olís and the company Dreki Holding.

A group of investors are behind Eykon Energy: chairman Heiðar Már Guðjónsson, Ragnar Þórisson, Jón Einar Eyjólfsson and the aforementioned Gunnlaugur Jónsson and Terje Hagevang.

From the Iceland Review, 3rd of April, 2012.


  • Orkustofnun – 2, April, 2012 – The National Energy Authority received three applications in the second licensing round –
  • Iceland Review Online – 3, April, 2012 – Icelanders to Seek Oil in Dragon Zone –

Shtokman Development AG Changes Gears … Again – Russia

The Shtokman project is currently under the direction of the aggregated Shtokman Development AG (SDAG), jointly owned by France’s Total (24%), Norway’s Statoil (25%), and Russia’s Gazprom (51%).  SDAG would have a 25 year license to explore, and operate the Shtokman Field (Штокмановское Месторождение) located within the Russian EEZ in the Barents Sea holding approximately 3.8 trillion cubic meters of natural gas and 37 million tons of gas condensate.

New information has surfaced lending to a scrapping of original project plans, and a stronger focus on LNG sea shipments.  This all likely in light of recent European turmoil, budgetary constraints, recent demand issues that stem from Ukraine, and a European movement to diversify away from Russian oil and gas.  I have done my best to highlight the old plan along with the potential new.

Shtokman Field - Russia - Barents Sea

Original Plan

  • Shtokman Field – Gas and gas condensate will be extracted from subsea wells and separated on board a floating production unit deemed to be one of the largest that will have been built.  Gas and gas condensate will then be transported to the city of Teriberka (read  The Economic Implications for Teriberka for more info) via two subsea pipelines.
  • LNG to be Shipped – From Teriberka, gas will be converted to Liquid Natural Gas (LNG) by means of a LNG Plant.  LNG will then be shipped out to markets by means of LNG tankers.
  • Gas to be Piped to Europe – Gas condensate will be treated at the onshore Gas Treatment Unit (GTU) with the resultant gas being forwarded through on to Vyborg (Russia), along the way being compressed by several compressor stations.  From there, gas will be sold to Europe by way of the Nord Stream pipeline, currently partially operational, that connects Vyborg and Greifswald (Germany).

New Developments

Industry experts have said the following concerning recent Shtokman developments;

“Shareholders are considering to scrap plans to pipe gas to Europe and to focus instead on liquifying the entire gas output to ship to global markets on tankers” – Alexander Medvedev, Deputy Chief Executive of Gazprom

“Everything is on the table now, even the possibility of Gazprom working with other foreign partners or maybe continuing the project on its own” – Industry Expert

“(Shifting to LNG) is just one of the options under discussion,” – Shtokman spokesman

EPC Engineer – Sthokman Overhaul Could Mean More LNG, New Partners

Briefly – Essentially, the “Gas to be Piped to Europe” is what would be scrapped, while the “LNG to be Shipped” would double.  This would have effects that would include but would not be limited to an increased demand for nuclear-icebreaker and LNG tanker production,  an incentive to improve current Arctic Ocean / Northern Sea Route monitoring / search-and-rescue capabilities, and a potential increase in the average cost to export each btu (not to mention CO2 / btu) of gas due to tanker-fuel requirements.

What is important, is that both Total and Statoil seem still to be committed to the project.  Albeit existing delays, a back-out from either of these massive partners would launch Gazprom into the search for new sources of funding.

Tapping Into Asian Markets – At first glance the move makes complete sense.  Original plans only stood the potential to sell a portion of production to Asia.  This new focus can be taken as a descent means to diversify into hungry Asian markets.  If the Asia of the future holds less-than-expected demand, the LNG tanker infrastructure enables sales to other growing regions as well.  Russia’s far-eastern, Sea of Okhotsk, operations are currently ill-positioned to gain from growing Asian demand, albeit a descent LNG production and shipment infrastructure, as forward contracts have mostly all been established at current production levels (Read Sakhalin Offshore Oil and Gas Reserves).  SDAG would be able to sell new LNG production on forward markets at today’s relatively higher prices.  *For our North American readers remember that our natural gas prices are low relative to those of world markets as Canada is severely handicapped in it’s ability to export LNG by sea (lessening competitive market forces), and new technologies have made available many new reserves and resources within both Canada and the United States.

 A Hedge Against Europe – It is quite clear that SDAG stands to gain from a hedge against sliding European demand for Russian oil and gas which could in turn affect Russia’s ability to control prices.  As a world leader in oil and gas exports, this potential decrease in European demand could force other Russian oil and gas producing regions to find customers elsewhere.  What can be said, however, is that it takes massive infrastructure spending plagued with time lags to get oil and gas to markets via land.  The sooner that Russia has the pipeline infrastructure built to connect with more of it’s southern (mostly) and western neighbours, the smaller the chance that price contracts will be held at lower prices due to ‘ability-to-deliver’ constraints.

Previous Posts
Arctic Economics has made several posts related to the Russian Shtokman project throughout the past year;

Nickel Mining in Russia – Norilsk Nickel & Amur Minerals

Russian Nickel Reserves and Production Map with EEZ

World Nickel Reserves and Production in 2011

Reserves – World nickel reserves, according to the latest data by the USGS, amount to 80,000,000 mt.  From the chart on the right, one can see that Russia holds currently 7% of the world’s nickel reserves amounting to 6,000,000 mt, coming in fourth place after Australia, New Caledonia, and Brazil.

Production – World nickel production in 2011 amounted to 1,800,000 mt.  From the chart on the left one can see that Russia produced 16% of the world’s nickel production at 280,000 mt.  All of the nickel producing countries increased production from 2010 to 2011.  Canada, for instance, increased their production by 26% from 158,000 to 200,000 mt, whereas Russia only increased production by 7% from 269,000 to 280,000 mt.

Russian Nickel Reserves and Production – 2010

Norilsk Nickel – Of the 269,000 mt of Russian nickel production in 2010, Norilsk Nickel Russian operations were responsible for 88% at 236,000 mt.  Norilsk Nickel is currently Russia’s largest mining company, operating Nickel mines at both their Kola MMC and Polar Division (of the Taymyr Peninsula) locations.  Russian enterprises received an average price of 21,997 USD per tonne of nickel in 2010 compared with only 15,853 USD per tonne in 2009.

Norilsk Nickel Polar Division Map –

  • Polar Division – Within the Russian Taymyr Peninsula, the Polar Division oversees three nickel-copper-sulfide ore deposites that are currently being mined.  These consists of the Oktyabrsky, Talnakh, and Norilsk-1 deposits.  Talnakh deposits are considered to be of the largest in the world.  Proven and probable nickel reserves amount to 4,700,000 tonnes.  Nickel production in 2010 amounted to 124,200 tonnes or 46% of total Russian nickel production.

Port Dudinka – The Polar Division relies almost entirely on the Yenisey River to export production to the rest of the world via Port Dudinka (shown in above map) and then via the Northern Sea Route (read more).  Norilsk’s Polar Division thus shipped 124,200 tonnes of the worlds nickel production (8.7%) through the port in 2010.  The port closes for only one month each year, during the ice thaw that occurs through May to June.  During the winter months, icebreakers are used to clear the Yenisei River that links port Dudinka with port Dikson, and thus the Northern Sea Route.  Icebreaker-like cargo ships are used as well that do not usually require any assistance from standard icebreakers.

  • Kola MMC – Within the Russian Kola Peninsula, the Kola MMC division oversees the mining of the Zhdanovskoe, Zapolyarnoe, and Kotselvaara and Semiletka deposits.  Nickel reserves amount to 1,400,000 tonnes.  Nickel production in 2010 amounted to 111,300 tonnes or 41% of total Russian nickel production.  The Kola MMC division is fully integrated into the well-developed regional transport infrastructure.

Amur Minerals (updated – July, 2012) – With operations in Russia, the firm operates and is exploring the Kun-Manie nickel-copper-sulphide ore deposit in the far east Russian province of Amur.  Joint Ore Reserves Committee (JORC) compliant probable ore reserves and resources amounted to 170,500 and 341,000 tonnes respectively, of contained nickel as of Dec, 2011.  An application for a license extension was submitted in May, 2012, as the current exploration license expires at the end of 2012.  It is probably worth looking at the reserve grades and resource % Ni content here in the 2011 Annual Report for a better idea of ore quality.

In March of 2011, the Kustakskaya license, just east of the Kun-Manie deposit in the region of Khabarovsk, was returned to Russia.


  • Norilsk Nickel – Kola MMC –
  • Norilsk Nickel – Polar Division –
  • USGS – Mineral Commodity Summaries 2012 – Nickel –
  • Amur Minerals – 2011 Annual Report –

New Study on Arctic Polar Bear Health and PCBs – Norway

We all know that the Arctic sea ice has been receding, and is projected, according to many sources, to continue this trend into the foreseeable future.   This phenomenon has the potential to decrease the habitable land that polar bears require for denning, along with the ground from which they are able to hunt.  There is, however, some good news that has surfaced as a result of one study put together by 5 scientists, headed by J. Bytingsvik of the Norwegian University of Science and Technology in Trondheim (NTNU), Norway.  The study looked at the prevalence of PCBs in the polar bears of Svalbard, Norway.

Above Polychlorinated Biphenyls (PCBs)

Contaminants have been accumulating in the Arctic for a long time and eventually make their way into the bodies of various Arctic animals.  PCBs are no exception as they have made their way up to the Arctic through various air streams.  These compounds are reported to have the ability to travel for days before they are broken down by sunlight, or come down to the earth’s surface by way of rain or snow.

From the US Environmental Protection Agency,

PCBs were domestically manufactured from 1929 until their manufacture was banned in the United States in 1979 and throughout the world as per the 2004 Stockholm Convention on Persistent Organic Pollutants.  PCBs have been shown to cause cancer in animals.  PCBs have also been shown to cause a number of serious non-cancerous health effects in animals, including effects on the immune system, reproductive system, nervous system, endocrine system, and other health effects.  Due to their non-flammability, chemical stability, high boiling point, and electrical insulating properties, PCBs were used in hundreds of industrial and commercial applications.

Bytingsvik’s Study (link at bottom)

The study, available as of January, of 2012 from the NTNU website looks at the plasma concentrations and prevalence of PCBs and hydroxylated PCB-metabolites (OH-PCBs) in mother polar bears and their 4 month old cubs from Svalbard, Norway.  In a nutshell, the study compared the concentrations of PCBs in these bears between the sampling years of 1997/1998, and 2008.  The study also looked at the propensity of mothers to transfer these compounds to their cubs through milk, and while still in the womb.

From Bytingsvik’s publication,

Plasma levels of PCBs and OH-PCBs in polar bears mothers and their suckling cubs were found to be significantly lower in 2008 when compared with results from 1997/1998.

She did however find that,

the levels of PCBs and OH-PCBs in cubs from 2008 were still above levels associated with health effects in humans and wildlife.

Studies have also been done in the past on the human ramifications of PCB exposure specific to our developmental stages.

Human infants that have been exposed to PCBs and OH-PCBs prenatally have shown lower birth weights, smaller head circumferences and alterations to thyroid hormone homeostasis.  Exposed children have also been shown to alter neural development, cognitive, motor, and learning abilities.

All in all, it shows that the global effort to reduce PCB pollutants has had a significant effect.  This is one matter that should lead the way for more positive-outcome thinking as it pertains to our global efforts to reduce the prevalence of harmful contaminants.


  • PCBs and OH-PCBs in polar bear mother–cub pairs: A comparative study based on plasma levels in 1998 and 2008 – 21/Jan/2012 –
  • Stockhold Convention –
  • U.S. Environmental Protection Agency – Polychlorinated Biphenyls (PCBs) – Basic Information –