The Nord Stream 2 pipeline lies abandoned after Russia invaded Ukraine
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Gazprom PJSC Slavyanskaya compressor stations, which is also the beginning point for the Nord Stream 2 pipeline in Ust-Luga Russia on Thursday January 28, 2021, sees a worker adjust a pipeline valve.
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One of the early casualties of Russia’s invasion of Ukraine — and its continuing geopolitical and economic fallout — has been the Nord Stream 2 gas pipeline, a massive energy project that took several years to build and cost $11 billion.
Even before Russia’s unprovoked onslaught, the signs were not good for the 1,234-kilometer offshore pipeline — designed to double the flow of gas between Russia and Germany. The major infrastructure project appears to be “killed,” according to one analyst.
Although the construction of the pipeline began in 2018, it encountered many obstacles and became a geopolitical stumbling block in Europe before being completed in September 2021.
However, by November of last year there had been more signs that trouble was brewing. the German energy regulator temporarily halted the certification processIt would then be able to begin operating the pipeline. Russia had been building up troops at the border of Ukraine, putting tens to thousands on the ground. the regulator cited legalitiesAs a reason why the suspension was made.
After Russia made the fateful decision in February to officially recognize two pro-Russian regions of eastern Ukraine, Nord Stream 2 was finally dead. This prompted the German government to stop certification under Chancellor Olaf Scholz.
It is now well-known that Russia’s recognition in Donbas of breakaway republics was an indicator of its larger invasion against Ukraine which started on February 24th.
The war that has ensued has thrown Europe into a geopolitical crisis not seen in years and has put joint projects and business partnerships between (and in) Russia and Europe — like Nord Stream 2 — on a cliff-edge.
The Nord Stream 2 project has been wiped out by Russia’s invasion and occupation of Ukraine. CNBC heard from Kristine Berzina (senior fellow, head of the geopolitics group at the German Marshall Fund) that it was impossible for Germany, or any European country, to authorize Nord Stream 2 after Russia’s actions.
Berzina stated that even functioning pipelines face a uncertain future in Europe, and Nord Stream 2 is in a frozen state. “I do not see any other use for the pipeline, but I am able to ensure its safety and stability.”
Russia’s invasion has accelerated the EU’s shift away from Russian energy with the bloc saying it will slash Russian gas imports by two-thirds by the end of 2022, and that it plans to end its reliance on Russian fossil fuel imports by 2030.
Russia responded to this threat by saying it would stop gas exports from “unfriendly” nations if gas payments are made in dollars or euros. This request was rejected by the Group of Seven industrialized states.
Analysts say that Nord Stream 2’s fate is uncertain against the backdrop of severe geopolitical tensions.
CNBC heard Wednesday from Kateryna Filippenko (principal analyst, Wood Mackenzie European Gas Research), that “We don’t believe Nord Stream 2” will ever be commissioned.
“Europe has changed in its attitudes towards Russian gas. It is now determined not to rely on Russian gas. Russia threatens to stop gas flow to Europe, if the payments aren’t made in rubles. There is no way to predict a rapprochement of Russia and Europe that would allow Nord Stream 2 to be approved, even if it happens in years.
“Death in water”
The pipeline was developed and was to be operated by Nord Stream 2 AG, a Swiss-based subsidiary of Russia’s state-controlled gas giant Gazprom. The project was funded by several European companies such as Uniper in Germany, Wintershall Dea Chemical Company, Shell, Engie and OMV.
Nord Stream 2’s energy partners have had to take huge losses due to the withdrawal of Western companies from Russia. Wintershall Dea announced in early March that it would write off its 1 billion euro ($1.1 billion) financing in the pipeline as have OMV and Uniper too. Shell also pulled out of the project.
Richard Gorry was JBC Energy Asia’s managing director. In February, he described the project to CNBC as “dead-in the water”, stating that it “was never truly alive” because it “was always in some kind of limbo, whether it be political or bureaucratic”.
CNBC has reached out to Gazprom, Nord Stream 2 and Nord Stream 2 (which are now subject to U.S. sanction following the invasion), for information on the plans and responses.
CNBC was informed by Bundesnetzagentur (German Energy Regulator) that the pipeline is far from ready to be certified.
It stated Tuesday that certification for Nord Stream 2 operators is contingent on a positive assessment by the Federal Ministry for Economic Affairs and Climate Action indicating that the security of supply has not been compromised.
The regulator stated that “this condition is not longer met” and added that “it cannot certify the company at the moment”. It also said that the law would make it illegal to operate the pipeline without certification.
The container has a map of the Nord Stream 2 pipeline in Lubmin, Northeast Germany. It was to be delivered Russian gas to European homes on March 1, 2022.
Afp | Afp | Getty Images
It’s clear that Nord Stream 2 has been rebuffed by Germany in its opposition to Russian gas. This was Warren Patterson of ING’s commodities strategy, who spoke on Tuesday to CNBC.
He said that “The EU’s desire to remain independent from Russian energy prior 2030 implies that it is unlikely we will see natural gas flow through the pipeline.”
Patterson anticipated that Nord Stream 2 operators would be willing to sit back and wait and determine if there’s a viable future. If there is, then they must decide to either remove the pipeline from service or abandon it. Patterson stated that the former would be costly.
War will determine the outcome
Russia is now under severe sanctions because of the invasion. The West has made Russia a pariah and tried to hurt Russia by sanctioning its energy industry.
The U.S. has banned imports of Russian-origin oil, liquified natural gas and coal while the EU has banned new investments in the Russian energy sector and the U.K. has sanctioned the leaders of Russian energy companies.
The fate of Nord Stream 2 will largely depend on how Russia invades Ukraine. This depends on a variety of factors. For example, whether Vladimir Putin admits his troops have failed to achieve their territorial goals on the ground, seeks a ceasefire or intensifies conflict. The equation also includes how well Ukraine’s defenses and forces can counter-attack and repel Russia.
The conflict could be seen as a war against attrition, where everyone loses. In the meantime talks between the two sides to find a ceasefire and peace deal remains fraught with difficulty.
A large fuel depot is being used to supply fuel to Kyiv. It’s located close by the western settlement of Klevan, in the Rivne area.
Getty Images| Anadolu Agency | Getty Images
One analyst said that there is a small chance Nord Stream 2 could turn its fortunes around.
Nord Stream 2 will not be relaunched, approved, unless Ukraine’s war comes to a close that guarantees Ukraine territory and peace, Henning Gloystein of Eurasia Group said Wednesday.
“Even in the case of a ceasefire and some type of settled settlement, it seems unlikely to me that a peaceful solution would be viewed as such stable that there is no Russian threat anymore,” he stated.
Henning observed that Putin appears pretty secure in his current position. The German government doesn’t expect a revival or Nord Stream 2.
“The only conceivable scenario for revival – and probably why NS2 is officially suspended, not canceled – seems to be under a totally reformed Russian government. I doubt Germany would want to revive NS2 as it was in the past, even if that were possible. It is likely that Germany will try to turn it into a hydrogen-pipeline. Gloystein said that this all seemed a little farfetched. CNBC asked the German government for more information and is still waiting on a response.
Kristine Berzina of the German Marshall Fund of America stated that over the years, there have been some speculations about whether or not the Nord Stream pipelines, as well as others, could be used in future to transport hydrogen. She also said that Russia may become a supplier.
For those who don’t want to fall back into the old dependence patterns on Russia, it is important to observe if there are any old-timers living in Germany that would like to revive energy relations with Russia using next-generation fuels with a decarbonization flag. Would Europe be willing to subjugate Russia once again? She warned that this would once again benefit Russia.
Alert signs
Since 2015, when Gazprom and other European energy companies agreed to build Nord Stream 2, the Nord Stream 2 pipeline has been controversial.
Germany and Russia under Angela Merkel (ex-Chancellor) insist that the pipeline is a commercial venture. They also claim that it will lower European gas prices. Berlin was criticized for the fact that the project received the go-ahead a year after Russia annexed Crimea.
In hindsight we all know better, but we shouldn’t have signed Nord Stream 2!” [agreement]CNBC was told by Wolfgang Ischinger, former diplomat and president of Munich Security Conference Foundation Council. But that is what actually happened.
Ischinger indicated that Germany still needs to make a significant effort to get rid of a long-standing Russian-German economic alliance, which was the basis for the Nord Stream 2 partnership. He also said Germany needed to wake up to the reality that Russia is “now our adversary”.
The fact that the proposed pipeline was bad and could go horribly wrong was evident from many quarters. This included the U.S., Poland, and Eastern European countries.
The pipeline will only increase Europe’s dependency on Russian gas imports. It also reduces the region’s energy safety. The U.S. long has a goal to increase its LNG exports to Europe and is paying Russia gas transit fees worth billions of dollars to Ukraine.
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