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New Sanctions Won’t Significantly Affect Completion Date For Nord Stream 2 Project – Analysis


The US Ambassador to Germany Richard Grenell’s statements concerning Washington’s plans to impose new sanctions against the Nord Stream 2 gas pipeline project show that the US is dominated by politicians who use the energy factor in the mainstream of anti-Russian and anti-European policy. This was stated by Foreign Ministry Spokesperson Maria Zakharova at the briefing on May 28, 2020.

“Such statements, which are less than diplomatic, show that, even in these difficult times, there are forces in Washington that continue to gain momentum, intending to dictate to other countries what energy policies they should pursue in complete disregard of international law, market laws, or their partners’ economic interests,” she said.

As the diplomat reminded, the Russian side has repeatedly underscored that Nord Stream 2 is a purely economic project aimed at increasing Europe’s energy security, strengthening its economic potential and facilitating its transition to low-emission energy.

“Apparently, the United States has decided to continue its policy of undermining the competitiveness of European companies, in its own interests, and to aggressively impose US goods on the market, including liquefied natural gas. This policy looks especially cynical while a significant number of countries are struggling to stabilise energy markets, which should also benefit American companies. It is regrettable that Washington is dominated by politicians who are not focused on promoting mutually beneficial international cooperation in the energy sector, but prefer using the energy factor to pursue their anti-Russia policy that, in fact, amounts to an anti-Europe policy because it concerns European energy projects,” Maria Zakharova said.

As noted on the Gazprom website, the decision to build Nord Steam 2 was based on the successful experience in building and operating the Nord Stream gas pipeline. In October 2012, the Nord Stream shareholders examined preliminary results of the feasibility study for the third and fourth strings of the gas pipeline and came to the conclusion that their construction was economically and technically feasible.

The entry point of the Nord Stream 2 gas pipeline into the Baltic Sea will be the Ust-Luga area of the Leningrad Region. Then the pipeline will stretch across the Baltic Sea. Its exit point in Germany will be in the Greifswald area close to the exit point of Nord Stream. The route covers over 1,200 kilometers. The total capacity of two strings of Nord Stream 2 is 55 billion cubic meters of gas per year.

The Nord Stream 2 project is implemented by the Nord Stream 2 AG project company. In April 2017, Nord Stream 2 AG signed the financing agreements for the Nord Stream 2 gas pipeline project with ENGIE, OMV, Royal Dutch Shell, Uniper, and Wintershall. In September 2018, pipelaying operations commenced in the Baltic Sea. To date, the gas pipeline has been built at 93%.

In December 2019, the Swiss company Allseas, which was engaged in the laying of pipes for the Nord Stream 2, had to abandon its work and diverted all vessels from the construction area due to US sanctions.

According to some experts, the politicization of the economic project that is opposed in the countries directly interested in continuing the transit of Russian gas through their territory – in particular, in Poland and Ukraine, is primarily beneficial to the US, promoting its own liquefied natural gas (LNG) to the European market. In turn, Russia has repeatedly stated that it is ready to compete with American gas. Moreover, according to analysts, gas from Russia will remain the most competitive in the region until at least 2035.

In early May, the Akademik Cherskiy vessel entered the German port of Mukran, where the Nord Stream terminal is located and pipes for Nord Stream 2 are stored. Since 2016, it is operated by Gazprom Flot and was named as a possible vessel to finish the construction of the gas pipeline. Akademik Cherskiy began its journey in February from Nakhodka. To find itself in the Baltic Sea, it had to go around Africa. It is known that on May 28 the ship left the port in northern Germany, stopped in the Prorer Wiek Bay opposite Binz, and returned the same day.

Along with the completion of the pipeline under US sanctions, the legal issues of the operation of Nord Stream 2 remain unresolved. On May 15, the Federal Network Agency of Germany (BNA) refused to remove it from the scope of the EU Gas Directive, while on May 20, the regulator exempted Nord Stream from these norms in Germany for 20 years.

On the same day, it became known that the European Court of Justice rejected the claims of Nord Stream AG and Nord Stream 2 AG against some amendments to the directive. According to them, all the rules of European law should apply not only to land, but also to offshore pipelines from third countries. So, it requires a separation of gas production and transportation activities. In other words, the producing company cannot simultaneously own the pipeline through which its gas is delivered. Another requirement is access to the pipeline by other gas suppliers. This means that Gazprom will be able to use only half the capacity of the new gas pipeline.

Nord Stream 2 AG said it will analyze the court decision. It has the right to appeal within two months.

Commenting on the current situation, expert on energy diplomacy, geopolitics, finance and investment Mehmet Ogutcu, who currently chairs a UK strategic advisory group Global Resources Partnership, and serves as Chair of The Bosphorus Energy Club and The London Energy Club and Special Envoy of The International Energy Charter, share the view that Russia can complete the pipeline by 2021 as planned. However, according to him, there is a new reality on the ground in the next few weeks “on which some strategic decision on Nord Stream 2 project will be taken.”

“For Gazprom, the completion and its further operation will suffer even greater losses due to extremely unfavourable situation on European gas market. Gazprom’s capital expenditures, including gas transportation infrastructure, are only growing, but related revenues are falling year by year,” the expert said, adding that one option is to sell the gas at the starting point of the Nord Stream 2 pipeline.

In his opinion, Gazprom has to overhaul its longer-term gas sales and infrastructure strategy in light of the changing dynamics in world energy and geopolitics.

“Berlin is under increasing pressure to pull the plug on Nord Stream 2, which is the latest front in the growing conflict between Europe and the U.S. Trump is demanding that Germany drop Nord Stream 2 as one of the conditions of a trade deal with Europe that wouldn’t include high tariffs on steel and aluminum. […] In April 2018, the EU Commission refused to back the project, saying it did not contribute to the EU goals of diversifying the gas supplies,” Mehmet Ogutcu said.

He also stated that the United States has a practical reason to oppose Nord Stream 2.

“The US companies have already started selling gas obtained by fracking to European countries, backed by US authorities who say Europe should seek alternatives to Russia. […] Germany and Austria criticized the US sanctions on Russia, describing it as an illegal attempt to boost US gas exports and interfere in Europe’s energy market and insisting that ‘Europe’s energy supply is Europe’s business, not that of the United States of America’,” Mehmet Ogutcu explained.

Patrick Sensburg, German MP from the CDU/CSU fraction, expressed hope for the completion of the pipeline Nord Stream 2 in the end of this year or in the beginning of 2021.

In his opinion, it is necessary to involve the critical thinking countries so that the completion of the Nord Stream 2 gas pipeline is for the benefit of all and a win-win-situation.

“Important is that the process is not being hindered,” the politician added.

He also reminded that the new EU gas directive aims to create conditions under which all EU countries could equally benefit from the implementation of Nord Stream 2, otherwise there is enough potential for conflict.

Moreover, Patrick Sensburg emphasized that the project is completely differently considered by the states of the European Union and the US.

“There are very different opinions about the Nord Stream 2 between the EU and the US. For the EU it’s important to ensure an independent security of energy supply. For the whole EU it’s a precondition that no country is left behind,” German MP stressed.

At the same time, in his opinion, the interaction of Brussels and Washington will remain stable in any case, even though all economic relations, which are sometimes built on the basis of completely opposite positions, require dialogue.

In turn, Frank Umbach, Research Director at the European Centre for Climate, Energy and Resource Security (EUCERS), King’s College in London, Executive Advisor at Proventis Partners, Adjunct Senior Fellow at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore, noted that no other energy policy project of the EU and Germany has been so controversial as the construction of the Nord Stream 2.

“Now Gazprom is the only shareholder of the Nord Stream 2 pipeline project and is building as well as operating the pipeline on its own. Hence it will be the first and by far the largest direct gas import pipeline of the EU under the exclusive control of Russia,” the expert said.

In his opinion, Germany has championed the construction of Nord Stream 2 more than any other country, but it failed to win a political majority for the construction of the pipeline within the EU. Austria and, initially with some reservations, the Netherlands and France were the only countries to support the project.

According to Frank Umbach, East European countries, the majority of the European Parliament and high-ranking representatives of the European Commission have interpreted Gazprom’s Nord Stream 2 gas pipeline project rather as a geopolitical project, as it “only offers an additional route, but not an alternative non-Russian gas import diversification.”

He reminded that the new German coalition government decided to support the building of at least two LNG import terminals in 2019 due to the rising criticism inside and outside of the country.

“It has also being used as a bargaining chip with the Trump-Administration not to sanction the European gas companies financing the Nord Stream 2 pipeline for supporting US LNG exports to Europe alongside [German Chancellor Angela] Merkel’s promise to maintain Ukraine’s gas transit status. Since 2019, four LNG-import infrastructure projects are being planned and discussed [in the EU],” Frank Umbach added.

Anton Friesen, Member of the foreign affairs committee and the committee on humanitarian assistance and human rights of the German Parliament, AfD MP, stated that some countries have politicized the Nord Stream 2 pipeline.

“They basically do not want any cooperation with Russia,” he stressed.

The deputy also drew attention to the double standards policy regarding the application of the Third Energy Package.

“The EU Gas Directive is only used selectively. It is basically an anti-Gazprom directive,” Anton Friesen stressed.

Meanwhile, in his opinion, the Nord Stream 2 will be completed in 2021.

“I expect it to be at full capacity a few years later. This will be possible because Gazprom’s transit contract with Ukraine, which was concluded in December, will expire in 2024,” the politician reminded.

According to him, Gazprom and the German and Western European importers will find ways to overcome the resistance.

“Russian pipeline gas is more reliable and generally cheaper than liquid gas. Numerous liquid gas terminals have been built in various European countries over the past ten years. They are only used to a small extent. It would already be possible to replace a large part of Russian gas exports, especially with imports from the Middle East,” — Anton Friesen said alluding to the lack of such a need in the EU.

“More liquid gas exporters will be added in the coming years, whether from West Africa or the Eastern Mediterranean. However liquefied petroleum gas is extremely harmful to the environment, both during extraction and during transport. LNG will gain a little more importance, but pipeline gas will remain the backbone of the supply,” the German MP concluded.


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