Despite the newly announced U.S. sanctions against the Nord Stream 2 project, Russia says it will build and launch next year the natural gas pipeline that has divided Europe for half a decade.
With Nord Stream 2, Russia’s President Vladimir Putin will have several major natural gas projects completed in the past few years, Bloomberg Opinion’s Europe columnist Leonid Bershidsky writes.
Russia’s supremacy in gas supplies will be further enhanced by the completion early
next year of both the Nord Steam 2 and Turk Stream gas pipelines which will be bringing more Russian gas supplies to the EU under the Baltic and the Black Seas respectively.
Russian position will be also strengthened by the Power of Siberia gas pipeline which was inaugurated in early December and which will be supplying 38 bcm of gas annually to China for the next 30 years.
And Putin’s plans don’t stop here. While Russia’s gas giant Gazprom is launching new pipelines east and west, Russia’s largest private gas producer Novatek is boosting its presence on the global LNG market. Novatek, which already exports LNG from the Yamal LNG plant in the Arctic gave in September the go-ahead to its second large LNG project, Arctic LNG 2. Now Novatek is a major exporter of LNG to China and it already accounts for 19% of the LNG market in the EU.
The United States has been trying to derail Nord Stream 2 first by President Trump threatening Germany with sanctions if it goes ahead with building the gas pipeline and now by threatening to impose sanctions on companies involved in its construction. But with President Putin at the helm and with support from the Iron German Chancellor Angel Merkel, Nord Stream 2 is unstoppable.
And despite claims by the United States that Nord Stream 2 undermines Europe’s overall energy security and stability, the Europeans see US opposition as a crude attempt to force them to buy US LNG.
While the sanctions may delay the completion of Nord Stream 2 by a few months, this will not affect Russian natural gas supplies to the EU. Russia could continue its gas shipments to the EU through Ukraine particularly after the recent agreement with Ukraine to settle their differences regarding the amount of Russian gas that will pass through Ukraine on its way to the EU and the transit fees that Ukraine will earn.
Still the United States’ projected LNG exports to the EU could be seriously affected. Germany may decide to shun US LNG exports altogether in retaliation against the United States’ interference in its energy affairs and the EU’s and buy Russian or Qatari LNG instead.
Moreover, previous US sanctions against Russia have proven a failure. Russia’s economy has emerged far stronger and more resilient from the 2014 US sanctions with Russia's foreign-exchange and gold reserves climbing by nearly one-fifth over the past year to almost $550 billion. This means that Russia could finance the completion of Nord Stream 2 on its own using its home-grown pipe-laying technology.
The reality of the 21st century—as President Putin sees it—is that energy is a political instrument. Political alliances and the rise and fall of the international importance of particular countries will change in accordance with the energy supply routes.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
In 2018 Ukraine transported 87 bcm of natural gas from Russia to Europe. With the completion of Nord Stream 2 (55 bcm) and Turkstream (15 bcm) it was expected that Ukraine would only be used to transport 10-15 bcm of natural gas with the resultant decrease in export fees which make up a significant source of revenue for the Ukraine government.
The recently signed agreement requires Russia to export a minimum of 65 bcm in 2020 and 40 bcm in the subsequent years of 2021-2024 through Ukraine with a payment of $7 billion. These values correspond to little to no use of Nord Stream 2 in 2020 and only one barrel in the subsequent years. The biggest winner is Ukraine, then Europe and possibly to Russia. The biggest loser is the US and its desire to export LNG to Europe.
With this agreement and the extra year Russia and Germany have to complete Nord Stream 2 with Russian equipment, no decrease in Russian natural gas to Europe is expected. Where Russia has the potential to come out ahead is from the expected increase in natural gas that Europe will need as the Netherland gas fields come to an end of production and Germany shuts down its nuclear power plants. The actual amount of natural gas needed in the future is dependent on how much renewable energy Europe can bring on-line. Still, it is expected that Europe will need more gas than they are using now. To meet this need Russia had talked about building a third Nord Stream pipeline.
With a more secure and friendlier pipeline through Ukraine, Russia can easily export whatever amount of natural gas through Nord Stream 2 and all the other pipelines Europe will need in the near to mid-term future. Europe has secured its natural gas needs and with the prisoner swap, etc. helped stabilize Ukraine.