Baltic States – CIS, Energy, EU – Baltic States, Gas, Transport

As talks between BP and Gazprom continue, the ‘admission fee’ for BP may amount to $300 million, while the construction of the extension will take about two years, ruvr.co.uk reports.

According to media reports, Gazprom and BP may clinch a deal as early as 2013. A BP spokesman refused to comment though, saying that the talks are currently at an early stage.

Nevertheless, BP Russia spokesman Vladimir Buyanov has told a Voice of Russia correspondent that BP is already negotiating the terms of a future agreement with the Nord Stream consortium.

A branch of the Nord Stream pipeline into Britain will guarantee alternative sources of gas supplies and will thereby boost the country’s energy security. It will connect the Russian port of Vyborg with the German port of Greifswald and will stretch as far as Norfolk in Britain. Expert Mikhail Krylov comments on the cost of the project.

'The pipe to Norfolk will be completed in a couple of years. Russia and Britain could unite on the basis of economic and strategic interests they share. BP has been looking to establish cooperation with Gazprom after its overseas business sustained substantial damage. Being starved of gas, Britain will push for an extension of the Nord Stream Pipe Line."

Over the past 5 years Britain has been importing LNG (Liquefied natural gas), mainly from the US, Norway, and what’s more important, from the Middle East. In a situation when gas supplies from the Middle East could come to an end and the country’s own oil and gas reserves in the North Sea have been almost used up, London is more than concerned about increasing and diversifying gas supplies. Prime Minister David Cameron discussed a project to pump Russian gas to Britain as he met with Russia’s President Vladimir Putin on the sidelines of the Olympic Games in London this summer.

But for its commitments to TNK-BP Ltd., BP would have started talks with Gazprom earlier. Now that it has sold its TNK-BP stake to Rosneft, the ambitious pipeline extension project can safely get off the ground. Only Brussels can obstruct its implementation now. The EU has initiated the so-called 'Third Energy Package' which provides for the separation of companies’ sales operations from their transportation networks. Even though the Nord Stream has pulled out of the package, its branches fall under its jurisdiction. Univer Capital’s Dmitry Alexandrov says Gazprom could count on support from BP in addressing this issue.

"Unlike pipeline grids as whole, the extensions don’t have transnational status. Brussels will surely try to delay the extension building process. BP’s participation would come in handy, either to secure the corresponding status, or if that proves impossible, to guarantee that the branch in question is filled with Russian gas to capacity. Fulfilled to mutual satisfaction, the extension would grace the entire Nord Stream Pipe Line Project."

Commissioned last year, the Nord Stream pipeline accounts for nearly one fourth of the European demand for gas. Gazprom’s gas selling subsidiary has been operating on the British energy market for several years. In addition, Gazprom leaders have reported many times about the purchase of shares in the British energy sector.