The Washington Post: Why the World Worries About Russia’s Natural Gas Pipeline

Russia’s Gazprom PJSC owns the project, with Royal Dutch Shell Plc and four other investors…

A new natural gas pipeline into Europe from Russia is shaking up geopolitics. Nord Stream 2, as it’s called, worries leaders in Eastern Europe, has put German Chancellor Angela Merkel on the hot seat and has prompted calls for sanctions from U.S. senators. Denmark gave approval on Oct. 30 for the pipeline to traverse its sub-sea territory, removing the final hurdle to its completion. Russian gas could be flowing through the conduit as soon as early next year.

1. What is Nord Stream 2?

It’s a planned 1,230-kilometer (764-mile) undersea pipeline that will carry natural gas from Russian fields to the European network at Germany’s Baltic coast. It will double the capacity of an existing undersea route — the original Nord Stream — that opened in 2011. Russia’s Gazprom PJSC owns the project, with Royal Dutch Shell Plc and four other investors including Germany’s Uniper SE and Wintershall AG providing half of the 9.5 billion-euro ($10.7 billion) in cost. As of the end of October, the link was 87% complete, according to Nord Stream.

2. When will it open?

Gazprom has received environmental and construction permits from all nations whose economic zones are crossed by the pipeline: Russia, Germany, Finland, Sweden and, most recently, Denmark. The permission from the Danish Energy Agency removed the last stumbling block for construction, meaning that Russia will likely be able to send gas to Europe via the route some time at the start of 2020. Gazprom Chief Executive Officer Alexey Miller said it would take around another five weeks to build the Danish section of the link, following a mandatory four-week waiting period imposed by Denmark. Pressure testing, cleaning, and filling the link with buffer gas may take another six to seven weeks, provided that Gazprom sticks to the same schedule as during construction of the first Nord Stream.

3. Why does Russia want the pipe?

Before the first Nord Stream, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine, a nation with which it has had tense relations since the Soviet Union collapsed. That left Gazprom exposed to disruptions, such as the pricing dispute with Ukraine that prompted Russian leaders to halt gas flows 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. The Nord Stream projects are just one part of Gazprom’s decades-long effort to diversify its export options to Europe. Russia expects European gas demand to increase as some nations move away from nuclear and coal power and as their domestic gas production decreases.

4. Why is the U.S. involved?

Trump has frequently criticized Germany’s support for Nord Stream 2. During a meeting in June with Polish President Andrzej Duda, he said that Germany is making “a tremendous mistake” by increasing its dependence on Russian gas. Weeks later, the U.S. Senate advanced legislation that would impose sanctions on companies involved in underwater construction of the link. After Denmark issued its permit for Nord Stream 2, Republican Senator Ted Cruz, one of the authors of the bill, urged the Senate to pass the legislation and “deprive Putin the resources to fuel his expansionism and military aggression.” There’s even a risk that Denmark’s approval could reignite a feud between Trump and the Scandinavian country that erupted last summer after the U.S. President offered to buy Greenland.

5. Is this all about selling more U.S. gas?

No question, the U.S. is keen to increase its European sales of what it calls “freedom gas.” But prospects are clouded. Gas from the U.S. must be chilled into a liquid form and shipped in tankers across the Atlantic at a great cost. Russia is supplying its gas mostly through the world’s largest network of pipelines that have been in place for decades, while adding significant volumes of low-cost LNG produced at its new Arctic plant. Nevertheless, U.S. suppliers have had some success securing deals with Poland, which is eager to loosen Russia’s grip over its energy supply. As U.S. LNG export capacity increases, more cargoes end up in European hubs. But a global glut has lowered prices in Europe so much that U.S. LNG is struggling to compete.

6. Do others oppose Nord Stream 2?

Countries that sit between Russia and Germany collect transit fees on the natural gas that flows through their territories. Those nations include Ukraine, Poland and Slovakia. They’re worried both that they will lose revenue and that Nord Stream 2 gives Russia the ability to bypass them completely in times of political friction. Ukraine, which remains the key transit country for Russian gas and is now in talks with Russia about a new shipment contract, is in a particularly vulnerable position. In a Facebook post after the Danish decision, Andriy Kobolyev, CEO of Ukraine’s Naftogaz, characterized Nord Stream 2 as a “geopolitical weapon” that cannot be stopped with trade rules alone.

7. Is Europe really captive to Russian gas?

The European gas market has become more competitive as LNG vies to replace declining local production from the North Sea and the Netherlands. Gazprom estimates that in 2018 its share of the European market grew to just under 37%, from around 34% in 2017. The company’s domestic rival, Novatek PJSC, is also growing 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 and North Africa. More nations, from Germany to Croatia, are seeking to build LNG import terminals to accept shipments from around the world.

8. Does the U.S. have other options?

U.S. LNG exports are mainly finding a home in Latin America, which is closer, and in Asia, where prices are often higher. Narrowing regional price differences and the ongoing trade war between the U.S. and China may become an obstacle, however. China’s imports of U.S. gas have slumped since Beijing slapped tariffs on the fuel last year in retaliation to the levies imposed by the White House. In the second quarter, the U.S. became Europe’s third largest LNG supplier after Qatar and Russia. This year, quite a few U.S. cargoes landed in Spain, even as South Korea, Mexico and Japan accounted for the bulk of the deliveries.

To contact the reporters on this story: Anna Shiryaevskaya in London at [email protected];Dina Khrennikova in Moscow at [email protected]

To contact the editors responsible for this story: Reed Landberg at [email protected], Andy Reinhardt

©2019 Bloomberg L.P.

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