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Oil & Gas 360 Publishers Note: Energy independence is a national security issue for the United States, and every other country in the world. Russia turned off the gas pipelines in the past to prove a political point. With over 14 countries getting more than 50% of their gas from Russia, that is a very sharp point on a political saber. This has also fueled the Mediterranean political strife over the extensive natural gas fields that we have been covering.   Oil and Gas is around 30% of the Russia GDP, and that should tell you why this is a very important issue to the Kremlin. Follow the money.

A natural gas pipeline being built under the Baltic Sea from Russia to the German coast is shaking up geopolitics. Nord Stream 2, as it’s called, fuels worries in the U.S. and other countries that the link could give the Kremlin new leverage over Germany and other NATO allies. As the project neared completion, U.S. sanctions and calls for European restrictions, as well as a Polish move to fine Russia’s Gazprom PJSC on antitrust grounds, have left the construction in limbo and ratcheted up political tensions.

Why the World Worries About Russias Natural Gas Pipeline -oilandgas360

1. What is Nord Stream 2?

It’s a 1,230-kilometer (764-mile) gas pipeline that will double the capacity of the existing undersea route from Russian fields to Europe — the original Nord Stream — which opened in 2011. Gazprom owns the joint Russian-European venture, with Royal Dutch Shell Plc and four other investors contributing half of the 9.5 billion-euro ($11.2 billion) cost. Initially expected to come online by the end of 2019, the link has been delayed by U.S. sanctions that forced Swiss contractor Allseas Group SA to withdraw its pipelaying vessels. The pipeline operator is looking for solutions to lay the remaining 6% of the pipe, which includes construction work in Denmark’s waters.

2. Why is it important?

The pipeline will help Germany secure a relatively low-cost supply of gas amid falling European production. It’s also part of Gazprom’s decades-long effort to diversify its export options to Europe as the region moves away from nuclear and coal. Before the first Nord Stream opened, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine. Their troubled relations since the Soviet Union collapsed left Gazprom exposed to disruptions: A pricing dispute halted gas flows through Ukraine for 13 days in 2009. Since then, relations between the two countries have worsened, culminating in the Ukrainian popular revolt that kicked out the country’s pro-Russian president and led to Russia seizing the Crimean Peninsula.

3. Who’s opposed to Nord Stream 2?

In August, Chancellor Angela Merkel’s administration came under pressure from German lawmakers to back away from the project after the poisoning of Russian opposition leader Alexey Navalny heightened diplomatic tensions. Merkel and her European allies were preparing to retaliate against Vladimir Putin’s government, but their plans may not make much of an impression on the Kremlin. Although countermeasures are all but inevitable, the European Union action may consist of asset freezes and travel bans for Russian officials, according to officials familiar with the discussions, who said Nord Stream 2 is likely to be spared. The Baltic pipeline has also been opposed by Ukraine, Poland and Slovakia — countries that sit between Russia and Germany and collect transit fees on the natural gas that flows through their territories. Those concerns were partially alleviated after Gazprom reached a deal to continue gas transits via Ukraine through at least 2024.

4. What’s Poland doing, and why?

Poland’s antitrust watchdog slapped a $7.6 billion fine on Gazprom over the Nord Stream 2 pipeline on Oct. 7, opening a new front in the bitter political battle. Prime Minister Mateusz Morawiecki said in September his government is stepping up pressure on Germany to halt the project following Navalny’s poisoning. The country has long objected to the gas link, arguing it will deepen Europe’s dependence on energy supplies from its neighbor and threaten the stability of Ukraine. The Polish regulator said the Baltic pipeline impedes competition and “violates the interests of consumers,” and gave Gazprom and its partners 30 days to terminate financing agreements to “restore” competition. Gazprom said it will appeal. While Nord Stream 2 is outside Polish territorial waters, Poland has leverage though its control of separate pipelines, notably the Yamal link carrying gas from giant fields in Siberia to Germany.

5. Why is the U.S. involved?

U.S. President Donald Trump and members of Congress say that Nord Stream 2 will make Europe overly dependent on Russia. Trump has said that Germany in particular will become “a captive to Russia.” It’s also clear that the U.S. is keen to increase its own sales to Europe of what it calls “freedom gas.” In June, a bipartisan group of senators proposed expanding the current sanctions against Nord Stream 2 to include insurers, certifiers and other companies working on the project. Senator Ted Cruz, one of the lead sponsors of the legislation, said the pipeline poses “a critical threat to America’s national security and must not be completed.”

6. What do the obstacles mean for the project?

Gazprom said in October that it plans to finish Nord Stream 2 “as soon as possible” after saying in June it aimed to start gas shipments by early 2021. However, tighter U.S. sanctions could put that timetable in doubt. Work at the Nord Stream 2 offshore site halted in late 2019 and neither the pipeline operator, Nord Stream 2 AG, nor its parent company Gazprom have announced a new construction plan. In August, Denmark’s permission to use pipelaying vessels with anchors for construction of the link came into force. A Russian pipe-laying vessel and an assistant ship have visited the German port of Mukran, the logistics hub for Nord Stream 2, over the past several months yet they have not done any actual construction. Pressure testing, cleaning, and filling the link with buffer gas may take six to seven weeks after the link construction is completed, based on the schedule for building the original Nord Stream.

7. Is Europe really captive to Russian gas?

The European gas market has become more competitive as liquefied natural gas, or LNG, vies to replace declining local production from the North Sea and the Netherlands. Gazprom estimates that in 2019 its share of the European market was 35.5%. The company’s domestic rival, Novatek PJSC, is also expanding its LNG sales in Europe. But not all countries are equally dependent on Russian imports. Gazprom remains the traditional key supplier for Finland, Latvia, Belarus and the Balkan countries, but western Europe gets gas from a wider range of sources, including Norway, Qatar, African nations and Trinidad. More nations, from Germany to Croatia, are seeking to build LNG import terminals to accept shipments from around the world.

8. Will the U.S. sell more gas to Europe?

Before the Covid-19 pandemic slashed global fuel demand and sent prices to record lows, the U.S. was a significant supplier of tanker-borne gas to northwest Europe. But U.S. fuel must be chilled into a liquid form and shipped across the Atlantic at great cost. Russia is transporting its gas mostly through the world’s largest network of pipelines that have been in place for decades. Over the summer of 2020, transatlantic LNG shipments became less economic but subsequently regained ground. U.S. suppliers are focused on long-term prospects, and have had some success securing deals with Poland. More broadly, they have to hope for a resolution of the trade war between the U.S. and China, whose imports of U.S. gas have slumped since the government in Beijing applied tariffs in retaliation to levies imposed by the White House. The International Energy Agency expects the U.S. to become the world’s biggest LNG seller in 2025.


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