On the Economic Impact of the Pipeline Project between Russia and Germany

Paper presented to SCORUS conference

14 - 16 October 2008 in Shanghai / Chinaby Helmut Maier, Germany,

and Hanna Sherbich, White Russia

Nord Stream Pipeline ProjectGeographical situation

Hanna Shcherbich: On the economic impact of the pipeline project between Russia and Germany. Master’s thesis for the Degree of a Master of Arts International Economics at Berlin School of Economics. Tutor and main examiner: Helmut Maier; assistant examiner: Siegbert Preuß, Berlin 2007

Nord StreamFacts and figures

- 1200 km off-shore pipeline connects directly Russia and Germany via the Baltic Sea

- 2 parallel lines and a sea platform with total capacity of 55 billion cubic meters of natural gas per year to be built until 2012

- 2 on-shore connections will complete the project and link the Nord Stream to the existing gas supply and transmission systems

- Nord Stream AG has been established for project’s administration by OAO Gazprom, Wintershall AG, E.On Ruhrgas AG

- Nord Stream estimated off-shore pipeline construction at 5 billion Euro in 2007

QuestionWhat impact will the North European gas pipeline construction - which is focused only - have on the economies of Russia and Germany in terms of production output and employment?

ApproachLeontief’s Input-Output theory in combination with the Scenario technique of Future Research

Statistical basis1) German Input-Output table of the year 1997

- 59 commodities, harmonized- Source: German Federal Statistical Office

2) Russian Input-Output table of the year 2003- 22 commodities, not harmonized- Source: Rosstat

Problems - High degree of financial data discrepancy- Inconsistency of Russian employment data

Remarks on the NORD STREAMOne of the most discussed natural gas pipeline projects today

Platform

Greifswald

VyborgOffshore 1200 kilometreTwo parallel pipelinesTo be built until 2012One platform in betweenCapacity of 55 billion cubicmeter natural gas per yearImportance confirmed by EU

Managed by Nord Stream corporationOAO Gazprom, Russia, 51%Wintershall / BASF, Germany, 24,5%,E.ON Ruhrgas / E.ON, 24,5%

  

Input-output table Input der Produktionsbereiche2) Input der Produktionsbereiche2)

 

Erzg. v.Produkte

nder

Land-wirtschaf

tund Jagd

Erzg. v.Produkte

nder

Forst-wirtschaf

t

Erzg. v.Produkte

nder

Fischereiund

Fischzucht

Gew. v.KohleundTorf

Gew. v.Erdöl,

Erdgas,Erbring.diesbez.

DL

Gew. v.Uran-und

Thorium-erzen

Gew. v.Erzen3)

Gew. v.Steinen

und Erden,sonst.

Bergbauerz.3)

H.v.Nahrung

s-,Futter-mitteln

undGetränke

n

H.v.Tabak-waren

Verwendung

 

 Selected from German Input-Output table 1997 Domestic Production

 

 

Aufkommen / Make

  01 02 05 10 11 12 13 14 15 16

  1 2 3 4 5 6 7 8 9 10

Output nach Gütergruppen (Zeile 1 bis 59):

Erzeugnisse der Landwirtschaft und Jagd 1 175 36 1 25 - - 0 - 32 947

614

Forstwirtschaftliche Erzeugnisse und DL 55 116 - 3 7 - 0 12 - -

Fische und Fischereierzeugnisse - - 31 - - - 0 - 384 -

Kohle und Torf 74 1 - 473 - - 0 42 31 1

Erdöl, Erdgas, DL für Erdöl-, Erdgasgewinnung 28 - - - 96 - 0 13 234 2

Uran- und Thoriumerze - - - - - - 0 - - -

Erze - - - - - - 0 - - -

Steine und Erden, sonstige Bergbauerzeugnisse 280 4 3 135 - - 0 85 148 -

Nahrungs- und Futtermittel, Getränke 4 057 4 - 4 - - 0 - 21 629

2

Tabakerzeugnisse - - - - - - 0 - - 177

Textilien 32 2 31 - - - 0 - 14 -

Bekleidung 3 1 - 6 - - 0 2 18 -

Leder und Lederwaren 22 2 - 3 1 - 0 5 - -

Holz; Holz-, Kork-, Flechtwaren (ohne Möbel) 79 4 1 30 1 - 0 8 121 22

Papier, Pappe und Waren daraus 34 2 1 8 1 - 0 138 2 365 316

Verlags- und Druckerz., bespielte Ton-, Bild- und Datenträger 51 10 2 26 3 - 0 19 422 42

Kokereierzeugnisse, Mineralölerzeugnisse, Spalt- und Brutstoffe 469 52 5 23 - - 0 42 289 4

Chemische Erzeugnisse 2 546 30 1 40 22 - 0 229 639 23

 

Absolute valuesMillion Euro

Input coefficients

Erzg. v.

Produktender

Land-wirtsch

aftundJagd

 

Erzg. v.

Produktender

Fischerei

undFischzu

cht

Gew. v.

KohleundTorf

   

Gew. v.

Erzen3)

Gew. v.Steinen

und Erden,sonst.

Bergbauerz.3)

H.v.Nahrun

gs-,Futter-mitteln

undGetränk

en

H.v.Tabak-waren

H.v.Textilie

n

H.v.Bekleid

ung

Verwendung/Use Erzg. v. Gew. v. Gew. v.

 Produkte

n Erdöl, Uran-

In %  der Erdgas, und

  Forst- Erbring.Thoriu

m-

Aufkommen/ makewirtschaf

tdiesbez.

DL erzen

       

  01 02 05 10 11 12 13 14 15 16 17 18

  1 2 3 4 5 6 7 8 9 10 11 12

Output nach Gütergruppen (Zeile 1 bis 59):

Erzeugnisse der Landwirtschaft und Jagd ..........................................

2,48334 1,20134 0,2631

60,4710

8 0 0 0 0 20,33054

1,88159 0,36209 0,01847

Forstwirtschaftliche Erzeugnisse und DL ............................................

0,11716 2,40269 0 0,0565

3 0,20339 0 0 0,2058 0 0 0 0

Fische und Fischereierzeugnisse ......................................................... 0 0 5,2631

6 0 0 0 0 0 0,0869 0 0 0

Kohle und Torf .........................................................................................

0,14243 0,04805 0 8,8562

3 0 0 00,7109

4 0,02355 0,02509 0,0437 0

Erdöl, Erdgas, DL für Erdöl-, Erdgasgewinnung ................................

0,01838 0 0 0 1,79661 0 0

0,07484 0,05198 0,0250

9 0,09364 0,01847

Uran- und Thoriumerze .......................................................................... 0 0 0 0 0 0 0 0 0 0 0 0

Erze ........................................................................................................... 0 0 0 0 0 0 0 0 0 0 0 0

Steine und Erden, sonstige Bergbauerzeugnisse ..............................

0,43648 0,14416 0,7894

70,6029

8 0 0 01,2535

1 0,09583 0 0,00624 0

Nahrungs- und Futtermittel, Getränke ..................................................

7,92556 0,19222 0 0,0753

7 0 0 0 0 13,63437

0,02509 0,00624 0

Tabakerzeugnisse ................................................................................... 0 0 0 0 0 0 0 0 0 4,0893

1 0 0

Textilien ....................................................................................................

0,03676 0,04805 3,1578

9 0 0 0 0 0 0,00162 0 13,43488

16,49426

Bekleidung ...............................................................................................

0,00459 0,04805 0 0,0753

7 0 0 00,0374

2 0,01137 0 0,01249 1,99483

Leder und Lederwaren ............................................................................

0,02757 0,04805 0 0,0376

9 0,0339 0 00,0561

3 0 0 0 0,02771

Holz; Holz-, Kork-, Flechtwaren (ohne Möbel) ......................................

0,11257 0,14416 0,2631

60,4145

5 0,0339 0 00,1122

5 0,05766 0,32614 0,05619 0,03694

Papier, Pappe und Waren daraus .........................................................

0,04824 0,09611 0,2631

60,1130

6 0,0339 0 02,0392

9 1,58938 6,92423 0,87402 0,67418

Verlags- und Druckerz., bespielte Ton-, Bild- und Datenträger ........

0,11486 0,48054 0,5263

20,4899

2 0,10169 0 00,3554

7 0,33217 0,97842 0,64927 1,24677

Kokereierzeugnisse, Mineralölerzeugnisse, Spalt- und Brutstoffe ... 0,9258 1,58578 0,7894

70,3391

7 0 0 00,6548

2 0,16811 0,07526 0,11237 0,08312

Chemische Erzeugnisse ........................................................................ 2,6924 0,67275 0,2631

60,3014

9 0,57627 0 03,6482

7 0,27369 0,30105 8,29691 0,90506

Gummi- und Kunststoffwaren ...............................................................

0,16311 0,43248 0,2631

60,3203

3 0,0339 0 00,1122

5 0,92666 0,30105 0,48071 0,21241

Glas, Keramik, bearbeitete Steine und Erden ......................................

1,05444 0,96108 0 0,2638 0 0 0 0,2058 0,54089 0 0,68048 0,02771

 

Leontief Inverse Input der Produktionsbereiche2) Input der Produktionsbereiche2)

 

Erzg. v.Produkte

nder

Land-wirtschaft

undJagd

 

Erzg. v.Produkte

nder

Fischereiund

Fischzucht

Gew. v.KohleundTorf

   

Gew. v.Erzen3)

Gew. v.Steinen

und Erden,sonst.

Bergbauerz.3)

H.v.Nahrungs

-,Futter-mitteln

undGetränke

n

H.v.Tabak-waren

H.v.Textilien

H.v.Bekleidun

g

final demand change Erzg. v. Gew. v. Gew. v.

 Produkte

n Erdöl, Uran-

  der Erdgas, und

  Forst- Erbring. Thorium-

total production change wirtschaftdiesbez.

DL erzen

       

  01 02 05 10 11 12 13 14 15 16 17 18

  1 2 3 4 5 6 7 8 9 10 11 12

Output nach Gütergruppen (Zeile 1 bis 59):

Erzeugnisse der Landwirtschaft und Jagd ..........................................

1,06263

0,02139

0,00901

0,00818

0,00116

0,00000

0,00000

0,00192

0,34611

0,17266

0,05170

0,02379

Forstwirtschaftliche Erzeugnisse und DL ............................................

0,00191

1,05949

0,00063

0,00192

0,00290

0,00000

0,00000

0,00345

0,00134

0,00250

0,00086

0,00083

Fische und Fischereierzeugnisse .........................................................

0,00043

0,00003

1,08888

0,00004

0,00002

0,00000

0,00000

0,00002

0,00427

0,00009

0,00006

0,00004

Kohle und Torf .........................................................................................

0,00515

0,00345

0,00337

1,10704

0,00162

0,00000

0,00000

0,01260

0,00428

0,00300

0,00635

0,00408

Erdöl, Erdgas, DL für Erdöl-, Erdgasgewinnung ................................

0,01346

0,02055

0,01588

0,01328

1,03861

0,00000

0,00000

0,01348

0,01203

0,00752

0,01705

0,01094

Uran- und Thoriumerze ..........................................................................

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

Erze ...........................................................................................................

0,00046

0,00051

0,00057

0,00314

0,00102

0,00000

0,00000

0,00071

0,00049

0,00033

0,00061

0,00048

Steine und Erden, sonstige Bergbauerzeugnisse ..............................

0,00886

0,00386

0,00970

0,03170

0,00053

0,00000

0,00000

1,01840

0,00549

0,00206

0,00249

0,00145

Nahrungs- und Futtermittel, Getränke ..................................................

0,12455

0,00735

0,00467

0,00623

0,00246

0,00000

0,00000

0,00381

1,25556

0,02307

0,01570

0,00861

Tabakerzeugnisse ...................................................................................

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

0,00000

1,04647

0,00000

0,00000

Textilien ....................................................................................................

0,00186

0,00221

0,11544

0,00219

0,00052

0,00000

0,00000

0,00113

0,00193

0,00098

1,29148

0,49058

Bekleidung ...............................................................................................

0,00021

0,00070

0,00011

0,00174

0,00009

0,00000

0,00000

0,00058

0,00036

0,00025

0,00044

1,23686

Leder und Lederwaren ............................................................................

0,00088

0,00161

0,00012

0,00122

0,00059

0,00000

0,00000

0,00152

0,00035

0,00020

0,00013

0,00210

Holz; Holz-, Kork-, Flechtwaren (ohne Möbel) ......................................

0,00514

0,00534

0,00761

0,01813

0,00420

0,00000

0,00000

0,00762

0,00526

0,01096

0,00475

0,00556

Papier, Pappe und Waren daraus .........................................................

0,01004

0,00547

0,01027

0,01160

0,00415

0,00000

0,00000

0,04109

0,03869

0,11860

0,03219

0,03158

Verlags- und Druckerz., bespielte Ton-, Bild- und Datenträger ........

0,00758

0,01068

0,01321

0,01765

0,00946

0,00000

0,00000

0,01215

0,01389

0,02469

0,01871

0,03140

Kokereierzeugnisse, Mineralölerzeugnisse, Spalt- und Brutstoffe ...

0,02029

0,03624

0,02633

0,01758

0,00755

0,00000

0,00000

0,01656

0,01401

0,00874

0,01647

0,01146

Chemische Erzeugnisse ........................................................................

0,09153

0,03184

0,03584

0,03901

0,01797

0,00000

0,00000

0,06986

0,05120

0,03939

0,26736

0,13308

Gummi- und Kunststoffwaren ...............................................................

0,01245

0,01269

0,00931

0,02463

0,00467

0,00000

0,00000

0,01214

0,02578

0,01278

0,01917

0,01898

Glas, Keramik, bearbeitete Steine und Erden ......................................

0,01900

0,01769

0,00607

0,02279

0,00351

0,00000

0,00000

0,01389

0,01736

0,00571

0,01873

0,00992

 

ApproachNotations within an open ended and static Leontief model

∆x change of final demand, vector, exogenous

∆X total change of total production output, vector

∆X direct change of direct fraction of intermediate production output, vector

∆X indirect change of indirect fraction of intermediate production output, vector

∆E change of people employed, vector

D reciprocal labour productivity coefficients, diagonal matrix

A input coefficients, matrix

(I-A)-1 Leontief Inverse, matrix

ApproachGraphical clarification of direct and indirect effects

Change of final demand

for goods and servicesof a special

commodity group j

Productionin commodity group j

Productionin other commodity groups

Impact on production of any other

commodity group i

Flow of goods/services

Flow of money

∆x j

∆x j

Directly tofinal demandfrom group jDirect intermediate output

from group i to group j

∆X i direct

∆X i indirect

Indirect intermediateoutput from group i

to group j

∆X i total = ∆X i indirect + ∆X i direct + ∆x i

Total production output of commodity group j

ApproachModel equations for the changes induced by

construction of the pipeline

∆x = estimated exogenous parameter

∆X total = (I-A)-1 ∆x

∆X direct = A ∆x

∆X indirect = ∆X total - ∆X direct - ∆x

∆E = D ∆X

Part of the projectConstruction costs

Billion € % Billion

€

On-shore connection on the Russian territory 4.5 28 3.36

Nord Stream (off-shore pipeline Vyborg-Greifswald) 5 31 3.72

On-shore connection on the German territory 6.6 41 4.92

Total 16.1 100 12.0

Cursive red figures: based on sourcesBlack figures of right column: included estimations in absolute values

ExecutionEstimated costs for the gas pipeline construction

Compressed commodity groups*Final demand

increaseMio. Euro

Total production output, increase

Mio. Euro

Employment increase People

Agriculture / forestry / fishery 0 10 199Mining / energy / water-supply 0 152 915Products of chemical / oil and gas industries 0 634 4,633Metals and products of metal-working industry 496 1,110 10,410Machines and equipment 1,950 2,597 21,404Products of light / timber and pulp / paper industries 0 215 1,885Products of food and beverages / tobacco industries 0 8 59Building construction 3,060 3,181 41,225Trade and intermediation services / services of transport and communication 0 645 8,656

Financial intermediation services / insurance / housing and communal services 0 1,343 9,542

Health and social services / education 0 28 182Public services / defense / social insurance /private households

0 87 1,538

Total 5,506 10,009 100,649

Scenario 1: The impact of the Nord Stream investments on German economyBasis: Input-Output Table 1997 for domestic production

* The original table contains 59 commodities

Scenario 1: Estimation of impact on German economy

Input data

The Nord Stream pipeline construction together with its on-shore connections on German territory increases the final demand for

- Building construction by 3 billion Euro

- Machines and equipment by 1.95 billion Euro

- Metals and products of metal-working industry by 0.5 billion Euro

Output data

- Total production output increases by 10 billion Euro

- Economic multiplier is equal to 1.8

- Up to 20,000 people employed per year, taking into consideration the timeframe of five years for construction, and the fact that labor productivity has apparently grown since 1997

Compressed commodity groups*Final demand

increase Mio. Euro

Total production output increase

Mio. EuroAgriculture / forestry / fishery 0 15Mining / energy / water-supply 0 291Products of chemical / oil and gas industries 0 1,026Metals and products of metal-working industry 0 647Machines and equipment 996 1,495Products of light / timber and pulp / paper- industries 0 185Products of food and beverages / tobacco industries 0 52Building construction 4,910 4,415Trade and intermediation services / services of transport and communication 0 1,263

Financial intermediation services / insurance / housing and communal services 0 110

Health and social services / education 0 57Public services / defense / social insurance / private households 0 51

Total 5,906 9,607

Scenario 2: The impact of the Nord Stream investments on Russian economyBasis: Input-Output Table 2003 for domestic production

* The original table contains 22 commodities

Scenario 2: Estimation of impact on Russian economy

Input data

The Nord Stream pipeline construction together with its on-shore connections on Russian territory increases the final demand for

- Building construction by 4.9 billion Euro

- Machines and equipment by 1 billion Euro

Output data

- Total production output increases by 9.6 billion Euro

- Economic multiplier is equal to 1.63

- Effect on the employment market shows a very positive tendency, but the received figures seem to be too high and biased