Russia’s planned 55 Bcm/year Nord Stream 2 gas link to Germany has prompted heated political debates, changes in EU law and threats of US sanctions, but its fate in the end may be decided by Danish civil servants enforcing local planning rules. The latest development is that the Danish Energy Agency has asked the Nord Stream 2 project company to provide information on a third possible route for the Danish section of the two 1,200 km parallel pipelines, while it is still assessing two pending permit requests for other routes. The problem for Nord Stream 2 is that it cannot complete the pipe-laying without a permit from Denmark, and there is no legal deadline for approving or rejecting such permits, creating uncertainty about when gas will start flowing through it. The
Siobhan Hall considers the following as important: EU, gas, Gazprom, LNG, natural gas, Nord Stream 2, Russia
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Russia’s planned 55 Bcm/year Nord Stream 2 gas link to Germany has prompted heated political debates, changes in EU law and threats of US sanctions, but its fate in the end may be decided by Danish civil servants enforcing local planning rules.
The latest development is that the Danish Energy Agency has asked the Nord Stream 2 project company to provide information on a third possible route for the Danish section of the two 1,200 km parallel pipelines, while it is still assessing two pending permit requests for other routes.
The problem for Nord Stream 2 is that it cannot complete the pipe-laying without a permit from Denmark, and there is no legal deadline for approving or rejecting such permits, creating uncertainty about when gas will start flowing through it.
The project company wants to bring Nord Stream 2 online by the end of this year, before Russian gas pipeline export monopoly, Gazprom, reaches the expiry of its transit contract to Europe with Ukraine’s Naftogaz. Gazprom has not said yet what it will do if that date slips.
Naftogaz officials have said Gazprom could meet its minimum contractual commitments to European customers without Nord Stream 2 or Ukrainian transit from January 1, 2020, as long as its 31.5 Bcm/year Turk Stream pipeline to Turkey starts by the end of this year as expected. That could see European gas prices spike in 2020, as customers make up any shortfall from storage and more expensive LNG sources.
But the more likely outcome, according to Naftogaz CEO Andriy Kobolyev, is that Gazprom will continue to use the Ukrainian route during any Nord Stream 2 delay. Gazprom sent 87 Bcm through Ukraine to Europe in 2018, and has said these volumes would likely drop to less than 20 Bcm/year once Nord Stream 2 and Turk Stream are available.
The European Commission and Naftogaz are keen for Gazprom to sign a long-term capacity commitment for the Ukrainian route after 2019 at volumes high enough to keep it viable. EC vice president for energy union Maros Sefcovic has reportedly suggested Gazprom commit to a minimum 60 Bcm/year capacity contract for 10 years, on a ship or pay basis, with Naftogaz ensuring another 30 Bcm/year capacity is available to cover any short-term extra needs.
But Gazprom and Naftogaz are locked in a protracted legal dispute over the current transit contract that will not be resolved till the middle of 2020 at the earliest. Gazprom has said it will not sign new terms before that dispute is resolved.
That approach works for Gazprom as long as Nord Stream 2 comes online by the end of the year. Everything that puts that in doubt – such as uncertainty over when Denmark will grant the permit – puts pressure on Gazprom to come to the negotiating table to agree new transit terms before the end of this year.
Kobolyev has said Gazprom could also book short-term entry and exit capacity, for example for a year, under Ukraine’s current tariffs and capacity booking products. Such short-term tariffs would be higher than those possible with a long-term contract, he said.
Nord Stream 2 already has all the other planning permits it needs from Finland, Germany, Russia and Sweden on its route across the Baltic Sea, and it has laid more than 800 km of pipe. The project company has said the Danish section can be filled in last if needed, so the project could stay on schedule even if the final permit is not granted until August.
Gazprom’s gas sales to Europe are on the rise, meanwhile, despite stable European gas demand. Sales hit a record 201 Bcm in 2018, using Russian measurements, as lower domestic European output boosted demand for imports.
The US continues to warn Europe against becoming more dependent on Russian gas, even while recognizing that it is currently cheaper than the alternatives, including US LNG. It is also a consistent, vocal critic of Nord Stream 2 for the negative impact it will have on Ukraine’s Russian gas transit revenues.
The EC sympathizes with the US view on Nord Stream 2, but there is no legal way to stop the pipeline being built as long as the project company complies with all EU rules. The US President has the power to impose financial sanctions on the companies helping to build Nord Stream 2, which could disrupt or delay the project, but the current incumbent, Donald Trump, has shown no sign of using them.
Meanwhile, the EC has been courting the US and its potential to increase LNG exports to Europe. It is planning a high-level EU-US industry meeting on May 2 in Brussels to discuss “competitive pricing,” among other things, with US secretary for energy Rick Perry due to give a keynote address.
But LNG imports from the US remain tiny compared with Russian pipeline gas, at just 3.3 Bcm in 2018, or less than 1% of total EU gas demand. The EC wants this to more than double to at least 8 Bcm/year over the next four years, and European demand for US LNG is growing rapidly – but from a very low base.
For example, US LNG exports to Europe, including Turkey, surged 75% on the year in February to 411.5 million cubic meters, but were still eclipsed by Russian LNG exports of 1.4 Bcm, up 67%, according to S&P Global Platts Analytics data.
The post Insight from Brussels: Start of Russian gas flow via Nord Stream 2 hangs on Danish permit appeared first on The Barrel Blog.