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Gas pipeline interconnection GIPL between Lithuania and Poland – part of new gas geopolitics in Europe

GIPL is a natural gas infrastructure that will connect Polish and Lithuanian as well as Baltic and Finnish natural gas transmission systems with the European Union (EU) system. GIPL gas pipeline will run from Jauniunai Gas Compressor Station (GCS) in Sirvintai district to the Hołowczyce GCS on the Polish side. Gas will be able to flow in both directions. This gas pipeline has a huge importance for the Baltic region and its neighbours.


In January 2020 the construction of the international gas pipeline linking Lithuania and Poland GIPL was completed. This was confirmed by the last act of completion of the GIPL project received on 31 December 2021. The entire 165 km long pipeline to the Polish border is already filled with gas.

GIPL together with the Estonian-Finnish gas pipeline “Balticconnector” is connecting the Baltic States and Finland with the European Union’s gas networks, increase access to alternative gas sources in the Baltic region and ensure security of gas supply and competition. Currently the Baltic states and Finland were able to buy gas across the continent only from the Russian Federation.

 

Gas demand in the Baltic States, Finland and Poland amounts to around EUR 29 billion cubic meters per year. Lithuania’s demand is 2.64 billion, Latvia’s – 1.45 billion, Estonia’s – 0.54 billion, Finland’s – about 2.5 billion and Poland’s – about 22 billion cubic meters per year. For a long time, all these countries were 100% dependent only on Russian gas and did not have any alternative supply sources.

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Source: https://skultelng.lv Baltic Market 2018

 

With the commissioning of the Klaipėda LNG terminal (ship “Independence“) in 2014 which has a maximum annual capacity of up to 4 billion cubic meters and founding the gas pipeline connections between Lithuania-Poland (GIPL) and Estonia-Finland (“Balticconnector”) Lithuania now will be able to transport gas from its LNG terminal in both directions – northwards to Latvia, Estonia and Finland and southwards to Poland and the rest of the EU.

The strongest demand is currently in Poland which is seeking to secure its independence from Russian gas until the expiry of the gas supply contract in 2022 via the “Yamal“ pipeline which is coming to Poland from Belarus.

[2]Source: baltic-course.com. GIPL and “Balticconector” pipeline connections

GIPL gas pipeline:

„Balticconnector“ pipeline:

 

Historical origins and gas geopolitics in Europe

The construction of the current gas pipeline system in Central and Eastern Europe began in the 1960s. Along with the economic goals it was supposed to make the Eastern Bloc countries dependent on gas supplies from the USSR. This was reflected in the so-called “Falin-Kwiciński” doctrine which assumed that military influence could be replaced by energy pressure.

The symbolic action that initiated the development of the current architecture of gas supply to Central and Eastern Europe is the signing of an agreement between the Soviet “Soyuzneftieexport“ (Союзнефтеðкспорт) and the Austrian “Österreichische Mineralölverwaltung“ (OMV) more than half a century ago – 1st of June, 1968. This is the first contract to supply Soviet raw materials to the Western Europe. About three months later gas from the USSR reached the Austrian Baumgarten. Today it is the largest gas hub in Europe (Central European Gas Hub – CEGH) which is the keystone of Russia’s gas supply infrastructure to Europe.

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The dynamic development of the gas supply system in Central and Eastern Europe took place in the 1980s. In 1984 the most important transmission line was put into operation – passing through Russia and Ukraine and then Slovakia right up to Baumgarten and Germany – Urengoy–Pomary–Uzhgorod pipeline under the name “Brotherhood” (Братство).

It was a gas pipeline line which together with the oil pipeline network laid the foundations for Russia’s new strategy of controlling the former Eastern Bloc countries through raw resources. This network was primarily of economic importance providing Russia with foreign currency incomes and substantial budget revenues. Oil and gas are still main export products for Russia. The importance of these incomes is demonstrated by the fact that Russia’s budget is still based on the forecast price of crude oil.

The second main gas pipeline was built more than a decade after the launch of “Brotherhood” pipeline. The Yamal-Europe pipeline “Yamal” (Ямал) was put into operation in 1997 running through Belarus and Poland to Germany. The decision to build it was taken in early 1990’s in anticipation of an increase of gas demand in Poland.

 

The result of a such pipeline architecture had several serious consequences. First, it has made Central and Eastern Europe and the Balkans highly dependent on Russian gas supplies. In 2013 Belarus, Estonia, Lithuania, Latvia, Moldova, and Slovakia were 100% dependent on Russian gas. In Austria, Bulgaria, the Czech Republic, Greece, Hungary, Poland, Slovenia and Ukraine, the dependence on Russian supplies exceeded 50%.

 

The region’s heavy dependence on gas supplies from Russia has made it possible to implement the “Falin-Kwiciński” doctrine. It was based on two mechanisms. The first was to link the price of gas in the contract with Gazprom to the foreign policy of the consuming country with a “compliance premium” for countries favoring Russia. The second is the temporary interruption of raw material supplies during the heating season.

The first mechanism – the “compliance premium”. This policy is as much effective as more dependent is country on Russian gas supply. An analysis of the gas offered to individual countries in the region shows a direct correlation between their support of Russian politics and gas prices.

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Source: https://www.rferl.org [5]. Prices paid by European countries for Russian gas in 2013

 

Austria ($397.4), Hungary ($390.8) and Germany ($379.3) which are favorable to Russia’s politics received gas at a significantly lower price in 2013 than for example Denmark ($495), Lithuania, Poland ($525.5) or Ukraine ($426). Interestingly there is no correlation between price and dependence on a single supplier. Finland which is 100% dependent on Russian supplies bought Russian gas at the relatively low price of USD 384.8 per thousand cubic meters.

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Source: https://www.rferl.org [5]. The largest Russian gas customers in 2013

 

Germany is the largest consumer of Russian gas in Europe. In 2013 Gazprom supplied Germany with 40.18 billion cubic meters of natural gas. Germany, Italy and the UK accounted for more than half of the EU’s gas imports from Russia in 2013.

A good example of the use of a pricing mechanism to influence countries in the region was Russia’s 2013 negotiations with Ukraine. Back then, during President Viktor Yanukovych’s visit to St. Petersburg, the Ukrainian delegation agreed not to sign the Association Agreement with the European Union in exchange for a reduction in the price of natural gas from around USD 410 to USD 268.5 per thousand cubic meters and a 750 USD million loan.

The second mechanism used by Russia – the temporary interruption of raw material supplies during the heating season has been used several times. Its use has been directly linked not so much to the overall approach to Russian politics in the long term but to specific actions by Central and Eastern European countries.

The first use of energy pressure was in 2006. The cause was the pro-Western Ukrainian government after the “Orange Revolution” in 2004. At that time Russia raised the price for gas from USD 80 to USD 230 per thousand cubic meters, i.e., almost three times. To leave Ukraine with no choice Russia also sabotaged the extension of the contract for Turkmenistan gas transit contract to Ukraine which had expired by the end of 2005. In the absence of an actual agreement gas supplies to Ukraine were completely cut off on the night between 31 December 2005 and 1 January 2006 forcing the Ukrainian government to accept Russia’s terms.

Another gas crisis erupted in 2009 when Russia tried to force Ukraine to sign a “fleet for gas” (флот за газ) agreement which would extend the lease of a Russian naval base in Crimea in exchange for more favorable gas supply terms. The failure of the parties to reach an agreement during the negotiations led to the interruption of gas supplies to Ukraine and subsequently to the disruption of a transit to the EU. The gas crisis in 2009 led to a drop of pressure in gas pipelines in Central Europe which was felt most acutely in Slovakia. Finally, under pressure from European countries, Ukraine was forced to sign a gas supply contract at an unfavorable price of USD 450 per thousand cubic meters. Moreover, Ukraine had to accept a so called “take-or-pay” formula under which it had to pay for 33 billion cubic meters per year without the right to re-export the unused part of it. As a result Ukraine paid the highest price for natural gas in Europe despite being the first country in the supply chain to Europe. It was only in 2010 that the price of gas for Ukraine was reduced when the pro-Russian Viktor Yanukovych took office as President of Ukraine. At that time the aforementioned “navy for gas” agreement was signed allowing the Russian Black Sea Fleet to be stationed in Crimea until 2042 in exchange for a 30% reduction in gas prices.

Nord Stream

The implementation of such a brutal policy has allowed Russia to effectively influence Ukraine but has had serious consequences for Russia itself. The credible threat of a cut-off of gas supplies to EU countries has undermined Russia’s credibility as a reliable gas supplier. The most striking example of this is the above-mentioned imposition of a state of emergency on the Slovak economy. This began the process of reducing dependence on Russian gas in all European countries.

Russia’s dependence on transit through Ukraine has prevented it from effectively pursuing a “policy of influence”. As early as in 1990 the Ministry of Energy of the Russian Federation decided to create an alternative route that could guarantee Russia’s exports to its main European recipient – Germany, despite what situation might be in Ukraine. This led to the idea of the “Northern European Gas Pipeline” later renamed as “Nord Stream”.

Russia has mobilized all possible diplomatic and non-classical diplomatic means to complete the “Nord Stream” pipeline. German Chancellor Gerhard Schroeder who later became Chairman of the Supervisory Board of “Nord Stream AG” investors was a key supporter of this pipeline. Russia has used similar political corruption against Finland as well. The country’s Prime Minister Paavo Lipponen was also employed by “Nord Stream AG” during the construction of the pipeline just after his retirement from the office.

“Nord Stream” flowing gas was originally intended for German needs, but the final destination was the Austrian Baumgarten (CEGH) hub. This is the same hub that is the end point of the gas pipeline through Ukraine. The onshore extension of “Nord Stream” that allows Russian gas to reach CEGH is the OPAL (Ostsee-Pipeline-Anbindungsleitung) pipeline which runs along the German-Polish border. This structure creates the possibility of supplying gas to Central and Eastern Europe via “Nord Stream” then through the OPAL pipeline to the CEGH hub.

The first line of “Nord Stream” was put into operation on 8 November 2011 and second line was launched on 8 October 2012. The pipeline has a total capacity of 55 billion cubic meters of gas per year. This coincided with Germany’s decision to move away from nuclear power and towards renewable energy sources with gas as a transition fuel.

Nord Stream 2

The idea of extending the “Nord Stream” pipeline’s capacity by two more lines was first mentioned in 2011. This is essentially a sister project with the aim of increasing the capacity from 55 to 110 billion cubic meters of gas per year. By comparison Poland’s annual gas demand is around 22 billion cubic meters.

The German government has consistently and actively supported the construction of “Nord Stream 2” primarily through information support highlighting the economical rather than the political nature of the project. At the same time, it has sought to take decisions at EU level that are beneficial for “Nord Stream 2”. On the contrary, the project’s biggest opponent Poland has been fiercely opposed the project and has been fighting for restrictions on “Nord Stream 2” through all possible legal means. As in essence the “Nord Stream 2” and its connection via the OPAL pipeline to the CEGH hub would put an end to transit through Ukraine.

Opposing the “Falin-Kwiciński” doctrine

The main target of “Nord Stream” and “Nord Stream 2” is clear – to make Russia independent from gas transit through Ukraine and if necessary, through Belarus-Poland transit as well. The experience of the gas crises in 2006 and 2009 has made Russia realize the need to maintain the capacity to pursue a crisis management policy in the region while avoiding economic consequences for the Russian economy itself. The result was the Ukraine bypass scenario implemented through the construction of three gas pipelines – “Nord Stream”, “Nord Stream 2” and “South Stream” (later renamed as “Turk Stream”). Finally, the plan is to restructure Russia’s European gas transmission architecture so that gas reaches Central and Eastern Europe via the three pipelines mentioned above and the CEGH hub. As a result, countries such as Poland, the Czech Republic, Slovakia, and Ukraine would be forced to import gas from the west instead of the east. Considering all the transit fees for Germany and Austria these countries would receive significant financial benefits in exchange for political favor for Russia.

These plans were discussed in very details at the “Nord Stream 2” conference in Brussels by Georg Zachmann who is an expert at the Bruegel Institute. The presentation analyzed Russian natural gas flows to Europe in 2014 and the possible changes in flows following the completion of “Nord Stream 2”.

In 2014 European consumers purchased 152 billion cubic meters of natural gas which reached their territory via three main routes: the Ukrainian (“Brotherhood”), Baltic (“Nord Stream”) and Belarusian (“Yamal”) pipelines. This was 63 billion, 38 billion and 36 billion cubic meters respectively. However, the most important here are not the volumes but the directions. The Ukrainian route which is responsible for meeting Ukraine’s own needs and gas imports to the Balkan countries, Hungary, Slovakia, and Romania, for less than half of Russia’s gas imports to Austria and the Czech Republic, and for about 30% of Russia’s gas imports to Italy. Gas through Ukrainian transit way gas also partly reaches Germany.

The launch of “Nord Stream” has squeezed gas supply through Ukraine to the Western European market. Mostly to the Czech and Austrian markets which used to receive Russian gas only via Ukraine. The OPAL pipeline which aims to distribute gas from “Nord Stream” across the continent plays a key role in this respect. Germany itself receives a large part of its gas from “Nord Stream” as well.

Finally, Belarus’ transit way through the “Yamal” pipeline accounts for 100% of Poland’s imports from Russia and about 1/3 of Russia’s gas imports to Germany.

Once “Nord Stream 2” would be operational Russia could make it a priority export corridor. Under such a scenario as much as 110 billion cubic meters of gas could be delivered to Western Europe via both “Nord Stream” and “Nord Stream 2”. The use of existing and future gas interconnectors could displace gas supply via Ukraine from the markets of Germany, Italy, Austria, the Czech Republic, Slovakia, Hungary, and Ukraine itself. The opening of the “Turk Stream” pipeline could also displace gas coming to the Balkans through the transit from Ukraine.

Securing alternative supply routes (until “Nord Stream”, “Nord Stream 2” and “Turk Stream” are fully operational) is critical for the Central and Eastern Europe and the Balkans countries. Only alternative supply routes could cushion the disruption of transit through Poland and Ukraine and the possibility of Russian blackmail.

 

Poland is currently working hard to delay launch of the “Nord Stream 2” pipeline. Significant efforts are being made to ensure independence from Russia until the end of the gas supply contract through the “Yamal” pipeline. For this reason, Poland and Denmark are building the 10 billion cubic meters “Baltic” pipeline from Norway scheduled for completion in 2022; expanding the Swinoujscie LNG terminal’s discharge capacity from the current 5 to 7.5 billion cubic meters. The Polish-Lithuanian interconnector (GIPL), with a capacity of 2.1 billion cubic meters has been completed to take gas from the Klaipėda LNG terminal ship “Independence”.

It is worth to say that the gas supply through the “Yamal” pipeline has already been disrupted twice – in 2016 and 2017. The first coincided with the NATO summit in Warsaw and the second with US President Donald Trump’s visit to Poland. The disruption of supplies through Poland diverted the transit to “Nord Stream” showing how easy it is to bypass Poland when its politics are unacceptable to the Kremlin.

In addition, Poland and Croatia are implementing the North-South corridor scenario as part of the so-called “Three Seas Project” which aims to ensure smooth gas supplies to the countries in the region using the capacity of the Swinoujscie and Croatian LNG terminals. This also includes the development of gas interconnections between the countries of the region – Poland-Slovakia and Poland-Czech Republic. A Poland-Ukraine interconnector is also planned.


Sources PDF [7]


Cover illustration: „Amber Grid“ has completed the construction of GIPL pipeline in Lithuania / Source „Amber Grid“


The article was prepared for publication by volunteers of the Res Publica [8] – Civic Resilience Center.


InformNapalm Partner in Lithuania: Res Publica – Civic Resilience Center.

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