The Economics of the Nord Stream Pipeline
EPRG Working Paper 1026
Cambridge Working Paper in Economics 1051
Chi Kong Chyong, Pierre Nol and David M.
Three-quarters of Russian gas exports to Europe transit through Ukrainian pipelines.
Since the breakdown of the Soviet Union, Gazprom -- the Russian gas giant with a
legal monopoly over exports -- has pursued a strategy of diversifying its export
options to Europe. It began with the construction of the Yamal-Europe pipeline in the
1990s and continued more recently with the Nord Stream and South Stream projects
under the Baltic and Black Sea, respectively promoted by Gazprom and its large
The Nord Stream project has been politically controversial since its inception but
there has not been any attempt at least publicly available to examine the
economics of the project in an in-depth manner. Existing papers suggest that Nord
Stream is economically justifiable only if Gazprom needs additional export capacity.
Explicitly or implicitly, this idea stands behind most claims that Nord Stream is a