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Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

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The Race To Complete The World’s Most Controversial Pipeline

It all started when leading European politicians, towering amongst them the German chancellor Angela Merkel, openly criticized the extraterritorial nature of U.S. sanctions against Nord Stream 2, stating that the latest round of sanctions that would target any entity involved in the construction of the subsea gas conduit go beyond international norms of law. Then came EU gas companies and lobby groups, calling for quick and decisive measures vis-à-vis the openly antagonistic U.S. government. The genuine surprise after all this came on July 06 when the Danish Energy Agency agreed to the usage of anchor positioning for pipelaying ships, paving the way for new pipelaying options for Gazprom, the Russian gas export monopoly.

By answering 5 basic questions, we will analyze the current prospects and challenges of the Nord Stream 2 pipeline, amid intense pressure from the US government to stall its construction and a hardening European stance to counter it:

Why is the Danish decision surprising?

Previously the Danish Energy Agency (DEA) have insisted on using vessels with dynamic positioning (DP) exclusively, claiming that anchoring vessels could sideswipe chemical warfare agents and ammunition dumped at the Baltic Sea. Generally speaking, a vessel with DP would boast a higher pipelaying speed. Gazprom has two vessels available, one with DP and one without, however both come with several roadblocks and would work ideally if could function concurrently. For this end Gazprom has done its homework to provide the utmost of information to DEA – this year it has used the Stril Explorer vessel to carry out subsea monitoring operations, claiming that Nord Stream 2 anchor-based pipelaying and bottom trawling carries no risk.

Why is the previous pipelaying candidate, Akademik Cherskiy suddenly out of the picture?

The attentive reader would remember that several months ago another vessel (equipped with dynamic positioning) was considered to be the key Gazprom asset required to finish the pipelaying part, Akademik Cherskiy. The vessel was moved from the Pacific Ocean port of Nakhodka all the way to the German city of Mukran on the Baltic coast, circumnavigating the African continent and continually changing the arrival port to perplex the Gazprom watchers. There has been no official communication on the prospects of Akademik Cherskiy, yet the travails of the tender issued by the vessel owner Gazprom Flot (unsuccessfully seeking an insurance coverage for its retrofitting) point to decreasing chances of us seeing it in exclusive action. On the other hand, Akademik Cherskiy might play an important role in laying the Nord Stream 2 pipes together with Fortuna. Related: Chinese Oil Imports Surged In H1 2020 Despite COVID-19

What would Fortuna bring to Gazprom?

Fortuna need not be retrofitted for Nord Stream 2 pipelaying as it has been already used for the purpose in 2019 – then it covered the German section as its average pipelaying speed of 1km per day was 3-4 times slower than that of Allseas’ vessels. Akademik Cherskiy is reportedly only equipped to lay pipes up to 32 inches in diameter, whilst Nord Stream 2 is 48 inches in diameter. With anchoring vessels allowed to work along the suggested NS2 route, Fortuna can be physically attached to Akademik Cherskiy and thus lay the pipes to the Baltic seabed. This constellation creates a rather straightforward path towards Nord Stream 2’s completion as both vessels are Russian assets (Cherskiy belongs to Gazprom Flot, Fortuna belongs to MRST), hence the sanctions threat would not work that well, being already sanctioned for a plethora of other reasons.

When can Gazprom start to lay the pipes?

DEA’s decision to allow anchoring vessels came on July 06 and would come into force 4 weeks following that, provided that there will be no appeals towards the Danish Energy Board of Appeal in the meantime. This means that in July 2020 Gazprom can still use Akademik Cherskiy, which is apparently still not retrofitted for the objective, but would need to wait with the incorporation of Fortuna, effectively bringing us to a preparatory lull before the two can work together on pipelaying. This will be a jittery wait for Gazprom and all the other Nord Stream 2 stakeholders, however the project entity will have a plenitude of tasks to keep itself busy – including but not limited to the final route of the pipeline in Danish waters (some 120km) which shall also specify the assumed timeframe of pipelaying.

What would the United States do?

The tone in the political discussion between the European Union and the United States concerning Nord Stream 2 has palpably changed in the past couple of months – now Brussels is not merely voicing its opposition but “preparing the ground for the adoption of an enhanced sanctions mechanism” that could shield Europe from extra-territorial punitive measures. Although little is known of its technicalities, Brussels and especially Berlin have raised the stakes for the U.S. to up the sanctioning ante. If the Protecting Europe’s Energy Security Clarification Act (PEESCA) does make its way into the 2021 Defense Authorization Act, there will be little more the U.S. can do – sanctioning Gazprom outright or European majors like Shell or Total is still hard to imagine. Thus, if the current sanctions regime is the one to stay, Gazprom can still finish Nord Stream 2 by the first months of 2021.

By Viktor Katona for Oilprice.com

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  • Carlos Everett on July 14 2020 said:
    Withdraw from Nato- let UK and Germany deal with Russia and they can fund their own defense. If they want to buy United States LNG that is fine otherwise, withdraw!!!!!!

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