Russia transports natural gas to Europe through three main routes. The primary natural gas export line is the Druzhba Pipeline system (there is a parallel oil pipeline of the same name), which passes through Ukraine. The second traditional route involves the parallel Yamal-Europe I and Northern Lights lines, both of which run through Belarus before splitting. The southern spur passes through Ukraine on its way to Europe, and the northern spur crosses Poland before reaching Germany. The most recently constructed pipeline to Europe is Nord Stream, which connects Russia directly to Germany (Russia's largest European customer) via the Baltic Sea, thus bypassing the other transit states.
Each of these systems, along with parts of certain interconnecting systems, have been running under capacity. But from February 2012 to February 2013, some 38 billion cubic meters of Russian natural gas was piped through Belarus, 77 billion through Ukraine and 12 billion through Nord Stream.
Russia's periodic disputes with Ukraine and Belarus occasionally have led to oil and natural gas cutoffs, making Russian supplies to Europe unreliable. This dynamic was the major motivation behind Moscow's decision to build Nord Stream, which secures the flow of Russian natural gas to Germany. Moscow has since continued this strategy with the construction of South Stream pipeline, giving Russia a direct connection to Southern Europe from Bulgaria and the Black Sea. The South Stream project is expected to be completed in 2015 with a capacity of 63 billion cubic meters per year, allowing Russia to bypass Ukraine almost entirely.
If built, the Yamal-II pipeline would further diversify Russia's transit options to Europe, depending on the political sentiments of the various transit countries at the time the line comes online. Currently, Russian natural gas must be piped through Belarus and Ukraine in order to reach Slovakia, a major natural gas transit hub. Yamal-II would give Russia the ability to divert natural gas flows in Belarus through Poland en route to Slovakia, weakening Ukraine's negotiating position even further.
A New Russia-Ukraine Dispute
The Yamal-II project has been on and off the table for roughly 20 years. It was last seriously considered in 2008, when Russia was still feeling the effects of lost revenues from when it cut off natural gas from Ukraine in 2006. Moscow shelved the project to focus on the more urgent Nord Stream project. The rebirth of Yamal-II stems from a new dispute between Russia and Ukraine, this time over Ukraine's attempt to reduce imports of Russian natural gas. In response, Russia levied a $7 billion fine on Ukraine for natural gas the country did not consume, and Moscow has also been pushing to gain ownership of the Ukrainian natural gas pipeline system.
So far, Ukraine has resisted Russian pressure and succeeded in cutting its intake of Russian natural gas, from 40 billion cubic meters in 2011 to 33 billion cubic meters in 2012. Ukraine is also working to reverse a series of interconnectors into Europe in order to be able to receive Russian natural gas supplies from countries to the west, rather than directly from Russia. Moscow still needs Ukraine for the bulk of Russian natural gas exports to Europe, giving Kiev continued leverage in the talks. But this leverage will disappear once South Stream is built and Ukraine is no longer needed as a transit state.
Yamal-II would further reduce Ukraine's leverage. But with a capacity of 15 billion cubic meters, Yamal-II would be a relatively small pipeline and would not be completed until 2019. Thus, at this point, Putin's announcement about the project is essentially little more than rhetorical saber-rattling directed at Ukraine.
Poland's Increasing Leverage
Notably, Yamal-II would strengthen Poland's position with Russia. Relations between Moscow and Warsaw have long been tense. As a major coal producer and consumer, Poland is one of the least dependent Central European states on Russian energy, and natural gas makes up just 13 percent of Poland's energy consumption (though 58 percent of the country's natural gas still comes from Russia). Moreover, Poland has been attempting to diversify its natural gas supplies through the shale gas sector, and it is constructing a liquefied natural gas terminal set to be complete by 2014 and expanded by 2016. These efforts put Poland on track to be fully diversified in the future.
This is likely why Poland dismissed Putin's announcement about Yamal-II's revival. Polish Treasury Minister Mikolaj Budzanowski said, "No one, except for the Polish company and the Polish government is entitled to make decisions about transit via the Polish territory. That is why we would like to tactfully remind that we are not going to build a new gas transportation network to Poland or the European Union on instructions from anyone, especially from Gazprom."
Poland does not need another pipeline from Russia for natural gas supplies, but Yamal-II would give Warsaw considerable leverage as a transit state. Though Poland tends to avoid projects that would either strengthen Russia or hurt Ukraine, having Moscow rely on Warsaw to transit its natural gas would benefit Poland considerably. In the event of a dispute with Russia, Poland would have the option to shut off the pipeline — as Ukraine did with Russia. Poland, as an EU member, would likely rather demonstrate economic responsibility to its neighbors. Still, even giving Poland the means to impact Russian natural gas flows is something Moscow will have to consider carefully.
Editor's Note: An earlier version of this report misstated the sea through which the Nord Stream natural gas pipeline passes.