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reSo far, the Kremlin has reacted demonstratively to the debate about a possible end to Nord Stream 2 due to the poisoning of Aleksey Navalnyj. He does not currently see any risk of blocking the project, Kremlin spokesman Dmitry Peskov said on Monday. At the same time, he made clear how absurd such demands are considered. But how great would the damage really be for Russia if Nord Stream 2 were to stop?
Katharina wagner
Business Correspondent for Russia and the CIS based in Moscow.
From the Russian point of view, the new gas pipeline, through which 55 billion cubic meters of Russian gas will be transported per year through the Baltic Sea to Germany, has many advantages. Above all, independence from Ukraine: until now, Moscow has had to route much of its gas supplies to the EU through its antiquated gas pipeline system.
Moscow has been arguing with Kiev about transit fees for years; the differences have led to delivery stops that also affected European countries. Since Russia annexed Crimea in 2014 and started a war in eastern Ukraine, Moscow’s economic ties have been bothering Moscow even more.
Russian speculation on the pipeline
After tough negotiations, the two sides agreed on the gas transit for the next few years at the end of 2019. The Russian side still assumed that Nord Stream 2 would be operational by 2021 at the latest, so a minimum volume of 65 thousand is planned million cubic meters of gas for this year and 40 billion cubic meters from 2021. The Russian state-owned company Gazprom, which has a monopoly on the export of gas by pipeline, channeled more than 90 billion cubic meters through from Ukraine in 2019.
If the Nord Stream 2 project, which has cost Russia and the group of investors each at least five billion euros each, is suspended or crushed, Moscow would have to negotiate additional delivery volumes – at prices that Kiev could dictate . Then Gazprom would have to spend most of the export earnings in transit.
Image: FAZ
It is also unclear how long Ukrainian lines can be used without investment. The gas reserves that they feed on will also be depleted soon. The huge gas fields on the Jamal Peninsula in northern Siberia, where the gas for Nord Stream 1 already comes from and which will also supply Nord Stream 2, will take their place. If the pipeline fails, Russia would have to upgrade its existing but outdated infrastructure to divert gas from Yamal to other pipelines to the west.
Linking Europe with Nord Stream 2
Nord Stream 2 is also of great value to Russia because the line would consolidate Moscow’s role in Europe’s energy supply in the coming years. After commissioning, a strong lobby group made up of Western European investors OMV, Wintershall, Uniper, Shell, and Engie would advocate using the pipeline to its fullest for at least ten years to make it profitable. This would be a counterweight for the EU countries, which are consciously moving away from Russian gas: Poland is building the Baltic Pipe with Denmark, with which Warsaw will receive Norwegian gas from 2022.
The links with Nord Stream 2’s European partners are also important for Gazprom in view of competition from the growing supply of liquefied natural gas (LNG). As a result, Gazprom is already losing customers in Europe. For example, the group did not meet its export target of 200 billion cubic meters in Europe in 2019 because Turkey, previously one of Russia’s most important sales markets, imported more liquefied gas than Russian natural gas. The Blue Stream gas pipeline, which carries Russian gas across the Black Sea to Turkey, is said to have barely been used for months this year.
Gazprom’s share of European gas supply fell from 45 percent in 2018 to 42.5 percent the following year. Earlier this year, exports collapsed as a result of the Crown crisis; Compared to the same period last year, Gazprom earned 53 percent less in Europe in the first five months.
In Russia, so far there are few successful liquefied gas projects of the private company Novatec, which also supplies Europe. So far, Gazprom has hardly played a role in the LNG business; The group wants to complete a new project in the port city of Ust-Luga by 2024, but it is still at the beginning.
In the long run, Russia has another problem that Nord Stream 2 should help solve. Due to the EU’s planned move away from fossil fuels, the Russian Ministry of Energy recently unveiled a plan according to which a new industry for hydrogen production, which is considered more environmentally friendly than natural gas, should emerge by 2024. Gazprom is considering adding hydrogen to natural gas in pipelines. According to Gazprom, only about 20 percent of hydrogen can be added to old pipes, as in Ukraine, while new ones like Nord Stream 2 can use up to 70 percent.
The end of Nord Stream 2 would be economically unfavorable for Russia, but it would not be a catastrophe either, says Sergei Kapitonow, a gas specialist at the Moscow Skolkowo School of Management. However, if the decision to build the pipeline were to be made again today, I would not recommend it due to the many problems that have arisen. Instead, Russia urgently needs to invest in liquefied gas projects, Kapitonow says, because the market is more flexible: Unlike pipeline gas, liquefied gas in tanker trucks can be shipped directly to where demand is high.
