Will the “Nord Stream 2” reach Germany?

10 m.   |  2020-01-31

The Nord Stream 2 pipeline, which is supposedly aimed to deliver 55 billion cubic meters of Russian gas to Germany per year was planned to be put into operation by December 2019. However, a number of obstacles have prevented the completion with only a 160 km out of the proposed 1220 km constructed.

The agreement of the gas pipeline was made in 2012 shortly after the completion of the Nord Stream [1] pipeline. Construction companies, together with Gazprom examined and assessed the feasibility of conducting the 3rd and 4th pipelines with positive results. The Nord Stream pipeline like its “twin pipeline” will stretch from Russia's Baltic coast near Ust-Luga to the German coast near Greifswald.

The Nord Stream-2 route from Russia to Germany.

The pipeline together with the Nord Stream will provide Europe with 110 billion cubic meters of gas. Gazprom is the only shareholder in the project with Nord Stream- 2 AG company managing it. French “Engie”, Austrian “OMV”, Dutch “Royal Dutch Shell”, German “Uniper” and “Wintershall” companies also are participating in the construction, providing up to 50% of the 9.5 billion euros spent on the project.

CEO of Engie Isabelle Kocher, member of Royal Dutch Shell Maarten Wetselaar, CEO of Germany’s Uniper Klaus Schaefer and CEO of Wintershall company Mario Meren are signing the contract.

The construction of the Nord Stream-2 began in September 2018. However, USA and Ukraine in particular as well as other Eastern European states have tried to stop or disrupt the construction of the Nord Stream-2 pipeline through sanctions and other political means.

Currently, almost half the gas (46%) reaching Europe, is provided by Russia. This puts the European Union in an uncompromising situation and with this in mind its keen to reduce energy dependence from Russia. Legal regulations are aiming to eliminate natural gas supply hubs and routes however, the Nord Stream-2 will increase Russian gas volume in Europe.

The top Russian gas import countries in 2018, according to Gazprom.

The issue on the Nord Stream-2 pipeline was discussed at the European Parliament and the EU Council. It was mentioned at the Ukraine-EU Association Agreement adopted by the European Parliament in 2018 that the pipeline’s construction is considered a political project, which threatens the energy security of Europe. A call to cancel the project is on the table though the European side hasn’t yet tried to stop it, with some restrictions introduced to hinder the project.

The Third Energy Packet adopted in 2009 was one of the bills that attempted to reduce Russia’s gas ties with Europe. Based on this bill, the gas seller and shipper shouldn’t be the same entity, this aims to exclude the monopoly in the industry. The proposed changes should also be applied to non-EU countries as well as EU where the pipeline might cross. The discussions on adopting the changes became more active in 2019, when Romania became a presiding country by bringing it to the agenda. Discussions began in January and a decision was made to amend the bill on April 15.

What does this mean for the Nord Stream-2? According to the proposed law, the gas transportation company cannot be both the producer and the seller, Gazprom is obliged to involve other companies in the project. This destabilizes the independents of Gazprom, to make decisions on price and other important elements. This doesn’t equate to being beneficial to the Russian side. 

The EU countries adopted these changes to their legislation and on November 13 Germany adopted its law on making amendments to the EU gas bill according to which the Third Energy Package amendment applies only to the 12 nautical miles from the coast of Germany. If two countries outside the 12 nautical miles come to an agreement the Nord Stream-2 will have an opportunity to bypass the Third Energy Package.

Denmark: The shortest and the most extended part

B esides the territories of Russia and Germany, the pipeline also passes through the territorial waters of Finland (374km), Sweden (510km) and Denmark (147km), which ultimately required permission from these countries to construct through their territory. Finland and Sweden gave their consent early on, with Denmark prolonging their decision for about 2 years and only in October 2019, Copenhagen gave the go ahead.

Although, the Danish side explained that it was peculiarities of its own laws and administrative processes. The Russian government and Gazprom links the long drawn out decision with intervention from Washington. When on October 30, Denmark agreed on running the Russian gas pipeline through its seas, in response, the Russian President Vladimir Putin emphasized about the strong pressure on Denmark, stating that Denmark is an independent and sovereign state. The Russian President is clearly insinuating “American pressure”, as Denmark is famous for its pro American stance.

As an EU member country, Denmark refuses to participate in any EU defense projects: It is not a member of the EU “Permanent Structural Cooperation” security and defense project. Parallel to this, Copenhagen often takes the American side in NATO decisions. Denmark actively welcomes the US anti-Russian sanctions. In 2016, Denmark persuaded the European countries to impose sanctions against Russia, even if it harmed their economies. Being a gateway to the Baltic Sea, Denmark is of central importance to US government agencies and private companies.

One of the reasons for dragging on their decision making on the pipeline are anti-Russian views which were expressed by former Prime Minister of Denmark Lars Løkke Rasmussen. It’s no surprise that Mette Frederiksen, who was a Social Democratic Party member and who replaced him in summer gave hope that an agreement would be reached.

Furthermore, there were rumors that Donald Trump planned to buy Greenland [2] from Denmark, however, Frederikse categorically rejected the idea after which D. Trump cancelled his meeting with him.

Nord Stream-2 didn’t avoid sanctions

I n 2019, the US stopped the construction of the pipeline using the power of sanctions. On December 21, Donald Trump signed the military budget for the 2020 fiscal year, which included sanctions against the Nord Stream-2 and Turkish Stream gas pipelines. The Nord Stream-2 was affected with the Swiss Allseas announcing, that it will stop its supply to the project. According to the agreement, the company could stop their contribution only in a force majeure situation:

Which company will continue the work? As American sanctions also threaten other companies providing such services. Some specialists offered to apply to Chinese Companies, less likely to be afraid of the US sanctions. Russia’s energy minister Alexander Novak announced, that Gazprom’s pipe-laying vessel “Akademician Chersky” could complete the construction of Nord Stream-2. However, it is currently in the Far East and will reach the Baltic Sea no earlier than in a month, moreover, additional training is required to work in the Baltic Sea. During the meeting between Putin and Merkel on January 11, the Russian President also stated that they would complete the work themselves.

Akademician Chersky vessel

In Germany the sanctions were assessed as an interference in the internal affairs of Germany and Europe. Moscow stressed, that the works of pipeline would continue and the pipeline would operate. According to Alexander Novak, the works of the Nord Stream-2 will be completed at the end of 2020. The European Commission also mentioned that the EU is principally opposed to the sanctions against companies doing business in its territory.

The US explains these sanctions are due to the increase in the Russian gas volume, which threatens global and European security. With the US considering the Nord Stream-2 as a political threat, America states that the Kremlin is attempting to increase its influence in Europe. In response to this, the Russian side clarifies, that the US wants to sell its liquefied natural gas to Europe, thus engaging in an unfair competition with Russia.

The EU also highlights the need for American liquefied gas if the price is competitive. The EU annually spends 300 bil. euros on purchasing energy sources, of which only 2% is in the USA. In recent years, the price for American liquefied natural gas has reduced and they aim to increase its volumes in Europe, however the problem is that new infrastructure needs to be developed for a liquefied gas transportation. Poland is an active buyer of an American liquefied gas and signed a 20-year contract with the American “Venture Global LNG” company, purchasing 2 mil. tons of liquefied gas annually, paying 20% less than Russian gas. Now only 11% of American liquefied gas is consumed in Europe.

Threat to Ukraine’s economy

T he sanctions were adopted when Russia and Ukraine were negotiating on the transportation of Russian gas through Ukraine. America was quite possibly trying to make Russia sign an agreement in favorable terms for Kiev, as there was a talk that Russia was going to stop supplying gas to Europe through Ukraine. The Ukrainian Naftogas company considered these sanctions a gift. Now the agreement between the two countries has been extended to 2024, as a result of which 40 bil. cubic meters of gas should pass through Ukraine annually, and Gazprom should provide the payment of  $2.9 bil. by the decision of the Stockholm arbitration.

Picture 7. Vice President of the European Commission for Energy Union Maroš Šefčovič, the Minister of Energy of the Russian Federation Alexander Novak and the Minister of Energy and Environmental Protection of Ukraine Oleksiy Orzhel.  

The Nord Stream-2 became a cause for concern for Ukraine, as Kiev feared the loss of transit revenue. According to the CEO of Gazprom Alexey Miller, in case of putting the pipelines into operation, Ukraine will lose 10-15 billion cubic meters of gas transit, while 38 bil. and 839,4 mil. out of the 200 bil. cubic meters of gas reaching Europe from Russia passes through Ukraine. The US Ambassador to Ukraine Marie Yovanovitch stated, that according to estimates, Ukraine will lose 3% of its GDP if the Nord Stream-2 is launched. For the last 6 years, Ukraine has transported 474 bil. cubic meters of gas, earning $14 billion.

Despite the obstacles, the Nord Stream-2 will most probably be completed this year. Russia is ready to strengthen the vessel Akademician Chersky, which will be costly and time consuming. However, the incompleteness of the pipeline’s construction can cause even greater losses for Gazprom and the participating European companies.

[1] The Nord Stream pipeline, put into operation since 2012, annually supplies 55 billion cubic meters of gas from Russia to Germany.

[2] Greenland is an autonomous territory within Denmark, with a population of about 56 thousand people. The local administration manages the internal issues, but foreign policy and defense are implemented  by Denmark. The United States has a large military base in Greenland.