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Nord Stream 2 Could Still Be Derailed By U.S. Sanctions

The potential for more tensions in relations between the U.S. and Russia continue to mount. Late last week, U.S. Energy Secretary Rick Perry said that Washington could still impose sanctions related to the building of the controversial Nord Stream 2 pipeline, which would bring Russian gas directly to Germany under the Baltic Sea. Perry made his comments in Warsaw as the Trump administration tries to convince EU members to sign LNG deals with U.S. producers to offset over reliance on Russian pipeline gas.

On Thursday, Polish state-run gas firm PGNiG signed a long-term LNG deal with U.S.-based Cheniere Marketing International. Poland has been fervent in its resistance to the Nord Stream 2 pipeline as well as working to reduce its reliance on geopolitically charged Russian gas. Moscow, for its part, has cut gas supply to Europe in the past during cold winter months to exert its influence in the region.

Warsaw and Washington also signed on Thursday a joint declaration on enhanced energy security cooperation. “This is also a clear signal that the U.S. strongly supports a pro-Poland and pro-Europe energy security policy,” Perry said. “Energy security in turn requires energy diversity. That is the reason we oppose the Nord Stream 2 project which would further increase the dangerous energy dependence many European nations have on the Russian federation,” he added.

Poland consumes around 17 billion cubic meters of gas annually, more than half of which comes from Russian energy giant Gazprom under a long-term deal that expires in 2022. However, Poland has said that it would not renew the gas supply deal, making the country race against time to replace the contract with new gas volumes.

When asked at a news conference whether Washington could impose sanctions on companies working on the project, Perry replied: “I saw no signals where we would ever get to the point where we can support Nord Stream 2.” He added that “sanctions were an option that the president maintained.” Related: Aramco CEO: Expect IPO In 2021

The Nord Stream 2 pipeline has also been a point of contention between Trump and Germany as well. In a televised meeting with reporters and NATO Secretary-General Jens Stoltenberg before a NATO summit in Brussels earlier this year, Trump said it was “very inappropriate” that the U.S. was paying for European defense against Russia while Germany, the biggest European economy, was supporting gas deals with Moscow.

However, since then, Germany has indicated that it wanted to buy more LNG from the U.S., with plans to build three LNG receiving terminals. Germany also remains firm in its support for the Nord Stream 2 pipeline. The $11 billion gas pipeline will stretch some 759 miles (1,222 km), 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.

Russia’s Gazprom is the sole shareholder in Nord Stream 2, shouldering 50 percent of the 9.5 billion-euro ($11 billion) bill. Gazprom’s Western partners are Austrian OMV along with Uniper, Wintershall, Shell and Engie.

Russia, for its part, claims that security concerns over the Nord Stream 2 pipeline are unfounded and that it is a purely economic venture. It also accuses the Trump administration of trying to erode Russian gas supply market share in Europe in favor of more expensive U.S.-produced LNG.

Russian Energy Minister Alexander Novak said in September that the pipeline would go forward even if sanctions were put in place. "We hope that there will be no sanctions. If U.S. restrictions are imposed, the project will be implemented anyway, the pipe laying has already started," Novak told reporters, adding that the plan envisions the project to be completed by the end of 2019.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on November 12 2018 said:
    Despite threat of sanctions by the United States and opposition by Poland, the Ukraine and Baltic States, Nord Stream 2 is unstoppable.

    The United States’ opposition to Nord Stream 2 is mainly motivated by self-interest and partly by geopolitics. However, the more pressure the US exerts on the European Union (EU) to abandon the project, the more defiant the EU becomes.

    Germany has made it clear that Washington shouldn’t interfere with Europe’s energy choices and policies and that European energy policy shouldn’t be defined in Washington. Moreover, Germany sees the project as a private commercial venture that will help meet rising natural gas demand in Germany and the EU.

    Nord Stream 2 is designed to bypass Ukraine, and Ukraine fears it will lose transit fees and leverage over Russia as the transit route for its gas to the EU. However, Russian President Putin said after meeting US President Trump in Helseniki in May this year that he is willing to continue transporting some volumes of Russian gas supplies to the EU through the Ukraine provided Gazprom and the Ukraine government settle legal issues between them.

    Part of US opposition to the Nord Stream 2 is that it hopes to sell more of its LNG to the EU. And while the EU is willing to buy US LNG as part of its energy diversification, it is not prepared to buy it at any price. US LNG currently is not competitive on the EU market.

    Until US LNG matches the price of Russian piped gas, it stands no chance against Russian gas supplies in most of the EU countries. The Europeans buy Russian gas not because it is imposed on them but because Russian gas supplies are reliable, efficient and cheap.

    If the Polish are foolish enough to buy the more expensive US LNG in preference of cheaper Russian gas supplies in order to spite the Russians, it is their own affair. Certainly, President Putin will not lose sleep over their not wanting to renew their gas supply deal with Russia.

    Finally please refrain from your habit of twisting facts. You claim that Russia has cut gas supply to Europe in the past during cold winter months to exert its influence in the region. I presume you were referring to 2009. The truth is that the Ukraine stealing Russian gas transiting through its territory to the EU without paying for it forced Russian hand to stop supplies to the EU via the Ukraine. There is a difference between Russia cutting off supplies to the EU and Russia being forced to stop the Ukraine stealing its gas. It was a collateral damage. I hope you understand the difference.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • alx west on November 14 2018 said:
    Moscow, for its part, has cut gas supply to Europe in the past during cold winter months to exert its influence in the region.

    ----

    when exactly ?
  • Sam on November 20 2018 said:
    Russia invaded Ukraine and would invade Poland and the Baltic states without NATO. If Germany persists in Nordstream II, and if Germany does not contribute to NATO then there will be a 25% tariff on German auto exports to USA. The upside is Germany won't need natural gas after their auto industry collapses!
  • Amvet on November 25 2018 said:
    Sam, How are things in Kiev? You should be ashamed to tell such lies about Russia.
    Russia is the largest country in the world and would not take the Baltic states as a gift.
    Just in case you do not know, continuous war is expensive and usually destroys the economy.

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