Why US-EU dispute is likely to go from bad to worse

A worker walks past snow-covered pipework in the garden at the Gazprom PJSC Slavyanskaya compressor station on Thursday, January 28, 2021.

Andrey Rudakov | Bloomberg | Getty Images

LONDON – A boiling geopolitical dispute over an underwater pipeline that will bring gas from Russia to Germany is expected to escalate in the coming weeks, with pressure on President Joe Biden to do more to halt the near-complete project.

When completed, the 1,230-kilometer (764-mile) Nord Stream 2 pipeline will become one of the longest offshore gas pipelines in the world. It is designed to deliver Russian gas directly to Germany under the Baltic Sea, which bypasses Ukraine.

In addition to several European countries, the US is against the pipeline and calls it a ‘bad deal“for European energy security.

Critics also argue that the pipeline is not compatible with European climate goals and that it is likely to strengthen the economic and political influence of Russian President Vladimir Putin over the region.

Led by Russian Gazprom, the state gas giant assert Nord Stream 2 is ‘particularly important’ at a time when Europe is seeing a decline in domestic gas production. Proponents of the pipeline also judge seeks to ‘influence or stop the project for political reasons.’

A bumpy road ahead for the project includes the threat of further targeted US-led sanctions, Germany’s federal election in late September and a continuing setback over the poisoning and arrest of Russian opposition politician Alexei Navalny. .

What’s at stake?

“The reason why it’s so geopolitically controversial is not necessarily about the pipeline or the molecules themselves. It has everything to do with timing and what it says about Europe’s relationship with Russia, Germany’s relationship with Russia and trans-Atlantic relations. , “said Kristine Berzina, a senior fellow at the Alliance for Securing Democracy, a national security advocacy group.

“The pipeline will either be built or it will not be built. Germany plays a role in possibly killing it. Russia is finding alternatives to circumvent sanctions so that it can be completed, but not much of this pipeline is left,” “Berzina told OilGasJobz.

The project is 94% complete, with more than 1,000 kilometers of pipeline and less than 150 kilometers left before Gazprom can turn on the taps.

Chancellor Angela Merkel is attending the 215th session of the Bundestag. Topics include the epidemic situation of national magnitude and the consequences of the closure of the economy.

Kay Nietfeld | picture alliance | Getty Images

One possible obstacle, according to analysts, could be the prospect of a German government opposing the pipeline. The next general election, to be held on September 26, will determine who will succeed Angela Merkel as the country’s chancellor.

The problem, however, is that the project is so close that the pipeline may be too late in September.

‘We can most likely finish the pipeline by September, and if the pipeline is finished, the gas will flow and I think it will be especially difficult to cut off the gas once you finish the pipeline. several months, even weeks, to determine whether this product will continue or not, ”Berzina said.

Is Nord Stream 2 inevitable?

Timothy Ash, senior strategist for emerging markets at Bluebay Asset Management, told OilGasJobz that the potential for further interventionist measures could potentially prevent the delivery of Russian gas via Nord Stream 2 to Europe.

Asked if the completion of the pipeline was unavoidable, Ash replied: “It looks like this, although the threat of sanctions against insurance contracts, I wonder if any real gas could flow through the pipeline.”

A worker fills a pipeline valve at the Gazprom PJSC Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust-Luga, Russia, on Thursday, January 28, 2021. Nord Stream 2 is a 1230 kilometer (764 mile gas pipeline that will double the capacity of the existing underwater route from Russian fields to Europe – the original Nord Stream – which opened in 2011.

Andrey Rudakov | Bloomberg | Getty Images

The nature of the dispute, according to Ash, was partly about gas supply to Europe, as the US “clearly” wants to supply the continent with liquefied natural gas, but there are broader geopolitical concerns.

“It is also the intention of the US that Europe is not fulfilling its security obligations. It is asking the US for security guarantees but selling to Russia at the first opportunity,” he added.

Where are we going from here?

James Waddell, senior global gas analyst at Energy Aspects, told OilGasJobz that US sanctions would be ‘one of the main obstacles’ to the completion of Nord Stream 2.

Waddell cites the measures taken last month when the US announced targeted sanctions against Russian plumber Fortuna in an attempt to delay the project. It is especially important that the German or European companies that help build the pipeline are not penalized.

Nevertheless, Russia has tried to “Russia-fy” the project, Waddell said, in order to effectively try companies that do not deal with the US, do not have US employees and do not need access to dollar-based loans. isolate. .

In practice, this means that Russia finds its own vessels to perform the actual physical work of laying the pipeline and transferring the assets and pipeline vessels to Russian companies.

Passers-by take photos of the Russian plumber “Fortuna” on the pier being towed by tugs from the harbor to the Baltic Sea. The special ship is used for construction work on the German-Russian Nord Stream 2 gas pipeline in the Baltic Sea.

Jens Büttner | picture alliance | Getty Images

Waddell said he doubted Moscow could isolate the project “in its entirety” as many European companies are already committed to the project and other international companies are likely to think twice about their involvement in preventing them from being on a US sanctions list. come. .

In addition, Energy Aspects analysts said the withdrawal of the project’s main certification company in December was another “major” issue.

The DNV-based DNV had to verify the safety and technical integrity of the pipeline system upon completion, but the risk management and quality assurance firm suspended its work on the project late last year amid fears of being approved by the US.

“This project was built to the standards of that certification firm, and it may be difficult to find another internationally recognized certification firm to step in and certify the project as ready,” Waddell said. “And we think that without that kind of certification it could become difficult for any European regulator to allow currents through the pipeline.”

– OilGasJobz’s Tom Chitty contributed to this article.

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