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Baltic Sea Pipeline: The Profits Will Be Distributed Differently

DIW Weekly Report 12 / 2009, S. 81-86

Franz Hubert, Irina Suleymanova

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In late 2005, the German energy companies E.ON and Wintershall and Russian Gazprom reached an agreement to build a new huge pipeline Nord Stream through the Baltic Sea. This pipeline will provide Russia for the first time ever with the direct access to its Western European customers. This pipeline will contribute to the security of the Western Europe's energy supply through creating an alternative supply opportunity for the case when conflicts with the current transit states lead to disruptions in supply. The realization of the project will also shift the bargaining power from the transit states to the benefit of both Russia and the Western European natural gas importers. Particularly, White Russia as well as the Ukraine will have to accept lower transit fees in the future and have fewer means left to enforce special conditions for their own natural gas imports. The decision to construct the pipeline can be viewed as a consequence of institutional and political weaknesses in the transit states.

JEL-Classification: L95;L14;C71
Keywords: Multilateral bargaining, Hold-up, Irreversible investment, Collusion
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