Only “Nord Stream 2” Can Save Ukraine from Collapse? What Awaits the New Gas Pipeline

Gazprom‘s only hope for the completion of “Nord Stream 2“, the pipe laying “Akademik Chersky“, arrived, covering its tracks, from the Far East to the Baltic Sea under the protection of three fleets of Russia, throwing an anchor off the home coast. But the real thriller – in light of the EU’s attempts to make the pipeline half empty, and the US – to ban it altogether – is just beginning.

So, it happened. The pipe laying “Akademik Chersky” – the only vessel capable of somehow completing “Nord Stream – 2”, which came from the Far East to the Baltic in a semi-secret way, under the convoy of the Russian Navy, in order to exclude being attacked by the navies of the US and Britain – anchored off the coast of the Kaliningrad region. The vessel is being re-fuelled and is taking on an additional crew. After retrofitting in one of the Russian ports, the pipelayer will be ready to continue, in accordance with its capabilities, the completion of almost 94% of the largest Russian-European energy project, which was abandoned by Western contractors of Gazprom, fearing the threat of American sanctions. Since the top officials of Russia promised to finish the project in front of the whole world at the end of this year or early next year, no one doubts that it will be finished at some point. But what will happen next, no one now knows.

Not yet built, but already a stepson

Doubts about the future of “Nord Stream 2” are caused by the fact that it, as it turns out, is not very awaited in Europe, while a number of countries, especially potentially transit countries, are openly hostile to it. And it’s not just that the costs of already imposed US sanctions have been mercifully shifted to Russia by Gazprom’s European partner companies. Questions also arose about the determination of the German government, the main European beneficiary of the project, to resist the increasing pressure of the United States and the machinations of Brussels, i.e., the leadership of the European Union, in which Berlin seems to be playing first fiddle. This happened after the Federal Network Agency of Germany (BNetzA), under a jesuitic pretext, decided to refuse to allow “Nord Stream 2 AG” to withdraw “Nord Stream 2” from the requirements of the updated EU Gas Directive, the very appearance of which was an attempt to bind Gazprom’s hands. In order to remove the gas pipeline from this equally jesuitic directive, it was supposedly necessary that the project be completed by May 2019, and now it is no longer possible to do so. Therefore, after commissioning, which will now require a number of tricks, the gas pipeline can be used only at a level of 50%, which makes it, to put it mildly, not very cost-effective.

The Federal Network Agency informed the German business body Handelsblatt that the draft decision was still under consideration, but that it would become final after May 9th after consultation with the parties concerned. And then “Nord Stream 2 AG”, the operator of the project, will have to sue the regulator in the Supreme Land Court in Düsseldorf or immediately in the European Court of Justice, where Russia is so “loved”.

Of course, the operator of “Nord Stream – 2” does not agree with opinion of BNetzA, will wait for the official decision of the regulator, will evaluate it, and, according to its press service, will take further actions to protect its rights. I.e., apparently, it will go to court, and it is clear what the result will be.

Three reasons

Why so? Firstly, because an economic crisis more serious than the “Great Depression” is looming, when Europe will not need too much gas. Secondly, European companies purchased almost twice as much liquefied gas (LNG) in 2019, including from Russia, compared to 110 billion cubic meters a year earlier after re-gasification.

But the most important reason is that the US has developed sanctions aimed at European buyers of Russian gas, which the Americans aggressively and brazenly, using blackmail and political pressure, are trying to replace on the European market with their more expensive liquefied gas.

The Europeans and Germans, in particular, do not want to fight with the “hegemon”, although they painfully endure such a boorish attitude towards themselves. Do they need to risk blocking company accounts and stopping transactions that pass through American payment systems? Abandoning Russia is therefore the only way out for them, the alternative being a collective (and it still has to be organised) revolt against Washington and a violent trade war with the United States in conditions when everything is already going to hell. At some point this will still have to be done, because the blackmailer, once it succeeds, will continue to act in the same spirit (the German car industry is next), but, of course, not now.

All of this means that Russia, of course, will complete the gas pipeline – it won’t be abandoned, billions of investments won’t be nullified (the Russian part is about €5 billion) – at the bottom of the Baltic to the joy of the United States, but there will be… no one to supply gas to through it. At least for a while.

What should Russia do?

What should Russia do in this situation? First of all, it should take its time and complete the gas pipeline as economically as possible, because any deadlines can be postponed, and Europe in the conditions of economic crisis will not need too much gas.

After all, Gazprom already has four supply routes to Europe: Nord Stream (60 billion cubic meters per year), Turkish Stream (31.5 billion cubic meters), Yamal-Europe gas pipeline through Belarus (33 billion cubic meters), and Blue Stream (16 billion cubic meters). A total of almost 140 billion cubic meters is produced.

But that’s not all. Taking into account the New Year gas contract with Ukraine (65 billion cubic meters in 2020 and 40 billion in the next four years, for which Kiev will have to pay even in the event smaller volumes are transited), supplies to Europe are guaranteed for the next five years. Meanwhile, during this time the Gazprom plant in Ust-Luga should start working. And it will be an additional 13 million tons of LNG or almost 20 billion cubic meters after re-gasification.

And there is also the supply of gas to China via “Power of Siberia“, with a design capacity of 38 billion cubic meters in 2025. It is also worth taking into account Russia’s ambitious plans to increase LNG supplies abroad (according to Energy Minister Aleksandr Novak, exports will amount to 80-120 million tons by 2035). Since Russian LNG plants are near Europe, gas supplies there will be beneficial for all parties. American LNG will not be able to compete with these supplies, which are difficult to sanction.

Of course, pipeline gas is more profitable than LNG for deliveries over a distance of less than four thousand kilometers. However, placing a stake on such a method of transportation can harm the interests of Russia’s gas industry as a whole, such as the prospects for the Arctic, where significant investments in LNG projects are envisaged and will need to be recouped.

What do we have in the dry residue?

This means that “Nord Stream 2” can be completed slowly, and that it is generally needed, in fact, only to insure against surprises that may happen to Ukraine in the coming years, because its outdated and leaky GTS will not survive the impending collapse of this artificial country. And Galicia, alas, will likely remain anti-Russian in the future and may prevent gas transit for non-economic reasons.

Therefore, the Americans, with their sanctions, and Europeans, with their cowardice, harm themselves first and foremost (the latter’s gas will cost more), rather than Russia and Gazprom, whose task is only to prepare quietly for force majeure. In general, this is clear, but how everything will develop practically, now nobody knows.

Sergey Latyshev

Copyright © 2022. All Rights Reserved.