New deal adds to Euro-gas grid plan

Jan 30, 1997 01:00 AM

A deal between several European energy companies added a Swedish building block to a new plan to bring Russian gas to Europe, in which Finland's Neste Oy has a key bridging role. The agreement, spreading minority ownership of Swedish energy group Vattenfall AB's gas unit Vattenfall Naturgas AB among its German, Danish, Norwegian and Finnish counterparts is primarily focused on boosting Sweden's natural gas market. But the Neste connection opens a wider question: the majority state-owned Finnish company recently agreed with Gazprom to prepare a trunk pipeline link for Europe. The two are now examining various technical options, with essentially two main options in mind: a direct sub-sea line or a route also through Sweden, said Neste executive vice president Tapio Harra. Cost-effectiveness will decide, he added. But Vattenfall's sale of minority stakes totalling 49 % of its gas unit to German Ruhrgas AG, Danish Dansk Olje og Naturgas and Norwegian Statoil as well as Neste, gives them an interest in the Swedish route. Vattenfall said its agreement aims to factor in and boost the relatively underdeveloped Swedish natural gas market by promoting a project to build a Nordic Gas Grid. He said natural gas now accounts for about 2 % of Sweden's primary energy supply against an average share of around 20 % in Europe. Taking the route through Sweden may boost the grid's economies of scale, fuelling gas growth. The pipeline Neste and Gazprom are preparing will bring gas from Gazprom -- which already produces 36 % of the world's natural gas -- via the so-called North European gas route, running through Finland, to the heart of Europe. Gazprom's greatest resource is in so-far unmeasured natural gas in Siberia. The world's biggest gas field Novyi Urengoi has known reserves of 10 trillion cubic metres. Europe's largest field, in the Netherlands, holds just one trillion.Gazprom -- listed on the London Stock Exchange since last October -- aims to export 20 to 30 bn cubic metres of gas to Europe yearly through the trunk pipeline, Harra said. Its total output last year was 575 bn cubic metres. "It's a considerable amount of gas, and much bigger than the potential of the Nordic market," Harra said, citing estimates that by about 2010 Europe would be short of between 50 and 70 bn cubic metres of gas annually. Harra said a "very very rough" estimate of the potential cost of the trunk pipeline is over $ 3 bn, with some technical concepts taking it over $ 5 bn -- although no decisions have yet been taken on how to finance it. The deal should also boost the new Scandinavian free market in electricity, Harra said. It will boost the option of co-generating electricity from natural gas, one of the most competitive forms of electricity generation available.

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