Russia revives $5bn Yamal-Europe pipeline project

Gazprom's Yamal-Europe 2 pipeline project, which will require around $5 billion of investment to construct the second branch of the gas route to East Europe could be completed by 2019.

Russian President Vladimir Putin spoke on returning to the project at a meeting with the head of Russia’s gas major Aleksey Miller. 

“We have almost begun work on South Stream and I would ask to return to the Yamal-Europe 2 project,” Putin said at the meeting, adding it is essential for “improving reliability of gas supplies to Poland, Slovakia and Hungary.”

Miller said the project could be completed by 2018-2019, after work on the South Stream is finished. It's expected to have a maximum capacity of 15 billion cubic meters. 

He also added that transit via the Yamal-Europe 1 pipeline is currently the most economically effective gas route, as the transit system in Belarus, unlike in other transit countries, belongs to Gazprom and the ground beneath it is on a long-term lease. The capacity of Yamal-Europe 1 pipeline is about 33 billion cubic meters. 

In view of the ‘gas war’ between Russia and Ukraine, Gazprom took a decision to build alternative routes around Ukraine. Among the two possible alternatives was the construction of the Nord Stream (estimated cost $6 billion) through the Baltic Sea and the construction of the second thread of the Yamal-Europe pipeline. 

Despite the difference in cost Gazprom suspended construction of the Yamal-Europe pipeline in favor of Nord Stream. The Yamal-Europe 2 pipeline project was estimated to cost around $2.6 billion.

However Poland didn’t express much enthusiasm on the news. Warsaw says it will only accept a state-owned investor to build and operate a second line of the Yamal-Europe pipeline via its territory, the country’s Treasury Minister, Mikolaj Budzanowski  said in response to a proposal by Russia’s President Putin.

Construction of the Yamal-Europe pipeline was begun in 1994. The first strand of the pipeline has been operating since 1999 and is jointly owned by Poland’s state-controlled gas firm PGNiG SA and Russia’s Gazprom.The pipeline is over 2000 kilometers long is now the main gas route to the Russia’s east European clients. It was once an object of an ownership struggle between the companies.

“The decision on building a transit gas pipeline will be a sovereign decision made by the Polish government and the Polish pipeline operator," Budzanowski said. “The legacy of the Yamal pipeline provides evidence that mixed ownership structures for managing transit pipelines are not effective.”

The idea on constructing of the second thread of the route was first announced in 2009. Then President Dmitry Medvedev said the project should be realized when Gazprom has enough gas supply deals sealed with the EU. 

The first branch of the Nord Stream which also serves Europe was opened in November 2011, with a capacity of 27 billion cubic meters. After a year the capacity was doubled, while the cost of the project rose to $7.4 billion. Also in 2012 Gazprom announced plans to construct two more threads of the Nord Stream. Gazprom’s Dutch partner Gasunie said on Wednesday it would sign up to extend Gazprom’s supply network to western Europe and build a third branch of the Nord Stream pipeline.

At the same time Gazprom engaged in another major investment project – South Stream. Its capacity is expected to total 63 billion cubic meters by 2017.