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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Nord Stream 2 Clears Another Hurdle

Nord Stream 2

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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  • Tony on August 16 2018 said:
    Gazprom already not need to wait Denmark, he decides to take the alternative route,
    so all is cleared and looks very very good for gazprom, US can start more sanction’s on Russia and Energy Companies, but NS2 will be done !
    But it is already clear that the US sanctions are not of political origin, they are of commercial origin, and that should be prohibited!
  • Amvet on August 16 2018 said:
    You claim "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." This is nonsense. The Ukraine purchased and used Russian NG and then refused to pay. That is the history of Russia´s actions.
  • Mamdouh G Salameh on August 16 2018 said:
    President Putin’s visit to Germany on Saturday the 18th of August 2018 at the invitation of German Chancellor Angela Merkel confirms two things. One is that the Nord Stream 2 gas pipeline which will bring Russian gas supplies under the Baltic Sea to Germany and onward to the European Union (EU) is unstoppable despite US sanctions on Russia. The other is that by inviting President Putin to Berlin a week after the US Congress enacted the latest mandatory sanctions against Russia, Mrs Merkel has indicated her opposition to these sanctions. Moreover, Germany has already started to build its portion of the Nord Stream 2 in its Baltic Sea port of Lubin.

    Aside from some geopolitical concerns by Poland, the Baltic States and the Ukraine (instigated no doubt by the US), Nord Stream 2 is first and foremost an economic project which will benefit Germany and the EU immensely by ensuring reliable and cheap gas supplies. Germany argues that the pipeline is needed to increase natural gas supply as some EU members are moving away from nuclear energy and coal for power generation.

    As for the Ukraine, Mrs Merkel must have been pleased by the conciliatory announcement by President Putin immediately after his meeting with President Trump last month in Helsinki that Russia will continue to transport some of its gas supplies to the EU through the Ukraine provided the Russian gas giant, Gazprom, manages to reach a settlement with the Ukraine on legal matters. The German Chancellor has been lobbying Putin for quite a while to keep using the Ukraine route and not undermine the Ukraine economy by stopping Russian gas supplies through that route.

    The US has opposed Nord Stream 2 from the start mostly because of self-interest. They claim they are concerned that it will tighten Russia’s grip on the EU gas market and thus erode the EU’s energy security. However, the EU suspects that US opposition is mostly motivated by its desire to displace Russian gas supplies with its LNG.

    European Commission President Jean-Claude Juncker said last week that Europe was ready to move on US LNG if priced competitively. However, it is virtually impossible for US LNG imports to compete on a cost basis with Russian piped gas. As a general rule, piped gas is far cheaper than LNG and much easier and cheaper to transport.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Douglas Houck on August 16 2018 said:
    NordStream 2 is about transit fees to Ukraine and the nasty divorce occuring between Ukraine and Russia, pure and simple. It has nothing to do with EU dependency on Russian natural gas, which is handled by long-term contracts between Russia and whomever.

    Can we quit with these articles being about the conniving Russian? Europe bought Russian/Soviet natural gas and oil all through the Cold War with no problems.

    It's nothing personal, just business. ????
  • Douglas Houck on August 16 2018 said:
    NordStream 2 is about transit fees to Ukraine and the nasty divorce occuring between Ukraine and Russia, pure and simple. It has nothing to do with EU dependency on Russian natural gas, which is handled by long-term contracts between Russia and whomever.

    Can we quit with these articles being about the conniving Russian? Europe bought Russian/Soviet natural gas and oil all through the Cold War with no problems.

    It's nothing personal, just business. ????
  • Mark Dye on August 28 2018 said:
    I'd suggest that the commenters consider it could be all of their points:
    a) no love between Russia and Ukraine
    b) keep other transit countries on a short leash
    c) destabilize the EU/NATO and its relationship with the US
    d) cash for a Russian economy in shambles
    e) hit US producers a second time with an over supply price crisis
    f) readers should check out the articles on avoiding gas/oil bottlenecks

    For Putin it sounds like a win-win-win situation given Trump's counter-productive foreign policy.

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