Russia has moved one step closer to seeing its controversial Nord Stream 2 natural gas pipeline become a reality. On Wednesday, the consortium managing the pipeline said that it has all of the Russian permits needed for installation.
"We are glad to announce that the necessary construction permits in Russia have been granted, meaning that the Nord Stream 2 project is developing according to the planned schedule," Chief Project Officer Henning Kothe said in a statement. The permit covers a section measuring 114 km in the Russian territorial sea.
Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm and is expected to become operational by the end of next year.
However, it is arguably one of the most geopolitically controversial energy projects ever proposed. Germany maintains that the pipeline is needed to increase natural gas supply as some EU members move away from nuclear for power generation, but not everyone agrees.
More than just a pipeline
Poland and the Baltic states, for their part, see Russian energy giant Gazprom’s pipeline as yet another geopolitical weapon that Moscow can use at its whim to keep is customers dependent on Russian gas supply.
Then there are the Americans who are concerned that Moscow will continually erode European security if the pipeline is finally built. President Donald Trump, not surprisingly, has offered what he sees as the perfect solution: more U.S. sourced LNG being imported into Europe. Related: All-Time Low Spare Capacity Could Send Oil To $150
The problem with that plan, however, is that much of Europe sees this American LNG push as a self-centered, profit driven, if not also with aspects of hegemony attached, ploy to help Trump achieve his so-called American independence agenda come to fruition while also appeasing the U.S. oil and gas industry, a huge supporter of the president during the last presidential election.
In recent weeks, amid trade quarreling between the U.S. and EU, the EU has indicated it is now more serious about making U.S.-LNG imports part of a way to offset trade balances with Washington and as a way to diversify gas imports. European Commission President Jean-Claude Juncker said last week that Europe was ready to move on U.S. LNG "if priced competitively."
European Commission trade officials will travel to Washington on Monday to follow up on the surprise agreement reached last month between Jean-Claude Juncker and Trump.
But, it is nearly impossible for U.S. LNG imports to compete on a cost basis with Russian pipped gas.
As a general rule, piped gas, though it carries an exorbitant capex to put the necessary infrastructure in place, is simply a cheaper way to ship gas than more expensive LNG that has to be liquefied, loaded onto special LNG tankers that chill the fuel while it is being carried long distances, then offloaded and re-gasified. Related: Indonesia’s Oil Sector In Jeopardy As Elections Loom
Russia, on que, counters that the pipeline project is a purely economic play. Yet, looking at Moscow’s history of cutting gas supplies into Europe during cold winter months it’s obvious that Washington’s concerns have considerable merit.
One holdout remaining
Russia, Germany, Finland and Sweden have all signed off on Nord Stream 2 pipeline construction permits for their respective territorial waters. Denmark, however, is still uncommitted. The Danish Foreign Ministry is currently considering the permits necessary to double the pipeline. Late last year, Denmark passed legislation that could block the project being built in its coastal waters due to security concerns.
However, lack of Danish support may not be enough to stop the pipeline. Though the proposed Nord Stream 2 route goes through Danish waters, the pipeline consortium is currently investigating an alternative route north of the Danish island Bornholm which would run in international waters and therefore not be impacted by a potential Danish ban.
Ukraine, which has argued that it will lose revenue since the Nord Stream 2 project would bypass it, is pressing ahead to form a consortium of EU-based companies to stop the new pipeline, however it’s unlikely that push will also come to fruition.
Gazprom already has a monopoly over Russia’s network of pipelines to Europe and supplies close to 40 percent of Europe’s gas. Meanwhile, Russia's gas exports to Europe rose 8.1 percent last year to a record level of 193.9 bcm, even amid concerns over Russia’s cyber espionage allegations, and its activities in Syria, the Ukraine and other places.
By Tim Daiss for Oilprice.com
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