4 Dec 2002 – Gazprom unveiled plans to build a North European gas pipeline linking Russia and Germany, its largest Western European customer. According to Gazprom CEO Alexey Miller the project will receive priority status akin to that of the Blue Stream project scheduled to come online later this month.
The project consists of two main stages: a 1200 km underwater pipeline linking Vyborg, Leningrad oblast and Greifsvald, Germany; and connecting the NEGP to Gazprom’s main pipeline system. In addition, the NEGP may also include links to other North European consumers, including Finland, Sweden and the UK.
The natural gas giant is also currently reviewing two capacity proposals for the NEGP 19bcm or 30bcm of natural gas per annum. Total construction costs are estimated at $5.7bn and Gazprom plans to launch the pipeline in 2009.
We believe that despite the seemingly hefty price tag the NEGP is a positive for Gazprom. The company currently has annual long-term obligations to deliver a minimum of 160bcm to Western Europe through 2010. While the existing pipelines have the capacity to carry this volume, growing exports beyond 160bcm would be impossible without new infrastructure. The project appears to be attractive from the commercial side as well. Assuming an $85/mcm net export gas price and current estimated 60 per cent EBITDA margin on exports, the NEGP will pay for itself within four to six years if Gazprom builds it itself.