Why the World Worries About Russia’s Nord Stream 2 Pipeline

By Dina Khrennikova and Anna Shiryaevskaya | Bloomberg,

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, has fueled worries in the U.S. and beyond that the Kremlin’s leverage over Europe and its energy market will increase once the twin pipeline is operational. Championed by outgoing German Chancellor Angela Merkel, it’s headed for completion this year after the U.S. and Germany reached a deal on the project effectively ending a longstanding rift over German gas purchases from Russia.

1. What is Nord Stream 2?

It’s a 1,230-kilometer (764-mile) pipeline that will double the capacity of the existing undersea route from Russian gas fields to Europe — the original Nord Stream — which opened in 2011 and can handle 55 billion cubic meters per year. Russia’s Gazprom PJSC owns the project operator, with Royal Dutch Shell Plc and four other investors contributing half of the 9.5 billion-euro ($11.2 billion) cost.

2. When will it open?

Completion is now expected by the end of August, with Nord Stream 2 due to start transporting gas later this year, the pipeline’s top official told German newspaper Handelsblatt. Initially expected to come online in 2019, the link was delayed by U.S. sanctions that forced Swiss contractor Allseas Group SA to withdraw its pipelaying vessels when all but 160 kilometers of the pipeline was in place. A small fleet of Russian vessels resumed construction in German and Danish waters in the winter of 2020-2021, and Russian President Vladimir Putin said pipelaying for the first line of Nord Stream 2 was completed in June.

3. Why is it important?

Nord Stream 2 will help Germany secure a relatively low-cost supply of gas at a time when European producers are reducing output. It’s also part of Gazprom’s decades-long effort to diversify its exports 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. The two countries’ troubled relations since the Soviet Union collapsed left Gazprom exposed to disruptions: For 13 days in 2009 a pricing dispute halted gas flows through Ukraine. Since then, ties between Russia and Ukraine 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.

4. Who’s opposed to Nord Stream 2?

Merkel came under renewed pressure from German lawmakers to drop the project after the 2020 poisoning of Russian opposition politician Alexey Navalny. Her administration responded that construction of the pipeline should not be linked to “individual cases” such as Navalny’s. Other opponents include Ukraine, Poland and Slovakia — countries between Russia and Germany that collect transit fees on gas flowing through their territories. Their concerns were partially alleviated after Gazprom reached a deal to continue gas transits via Ukraine through at least 2024. Critics of the pipeline are concerned about what will happen after 2024. Merkel said Europe will do everything it can to make sure gas supplies continue to flow through Ukraine. Republican Senator Ted Cruz of Texas called the U.S. accord with Germany a “complete and total capitulation” by U.S. President Joe Biden to Putin.

5. Why is the U.S. involved?

The U.S., under both Biden and his predecessor Donald Trump, has asserted that the new export route would make its allies in Europe overly dependent on Russian energy supplies. Yet it’s also clear that the U.S. has been keen to increase its own sales to Europe of what it calls “freedom gas.” The Washington authorities were committed for many years to stopping the gas link, or at least putting significant hurdles in its way.

6. What does the U.S. accord with Germany cover?

Under the agreement, if Russia attempted to use energy as an economic weapon or commit aggression against Ukraine, Germany would take action itself while also pressing for measures at the European level, including sanctions to limit Russia’s energy exports. The U.S. and Germany will also seek to promote investments of at least $1 billion in a so-called Green Fund to help Ukraine’s transition to cleaner sources of energy. Germany has committed to an initial $175 million investment in the fund. Germany would also appoint a special envoy — with $70 million in funding — to support bilateral energy projects with Ukraine.

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 has estimated that in 2020 its share of the European market was around 33%. Its domestic rival, Novatek PJSC, is also expanding LNG sales in Europe. But not all countries are equally dependent on Russian imports. Gazprom remains a traditional key supplier for some eastern and central European countries, while western Europe gets gas from sources including Norway, Qatar, African nations and Trinidad. The likes of Poland, Lithuania and Croatia have built LNG import facilities to diversify their supply sources. The European Union in general is reducing the role of gas as it rapidly turns to cleaner energy.

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

The U.S. supplies tanker-borne gas to Europe, but it must be chilled into a liquid form and shipped at great cost. Russia transports gas mostly through the world’s largest network of pipelines that have been in place for decades. Availability of U.S. LNG in Europe depends on prices there and on appetite in Asia. With higher prices in 2021, cargoes with American LNG arrived in the region in large quantities until greater demand and even higher prices in Asia soaked up much of the supply in the summer. While U.S. suppliers are focused on long-term prospects, and have had some success securing deals with Poland, they have also had setbacks from Ireland to France on environmental grounds. The International Energy Agency expects the U.S. to become the world’s biggest LNG seller in 2025, but Qatar’s recently announced low-cost production expansion plans may stifle that growth.

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