Nord Stream-2: 148 unfinished kilometers and geopolitical risks of partners

Despite the refusal of contractors and financiers to continue to participate in the construction, the Russian gas giant will be able to bring the project to operation on its own, but this is not the biggest problem.

Yelena Ivanova, Natalia Seibil

The main difficulty of the Russian-German gas pipeline is the unprecedented pressure exerted by the United States on Russia, Germany and all the companies involved in the project. The influential German politician, head of the Munich Security Conference Wolfgang Ischinger, recently spoke on this topic in his article for Der Spiegel. Now, from a foreign policy point of view, it does not matter whether this is a private project or not. For Germany, Nord Stream 2 has become a significant political and strategic issue that threatens the trust built for decades in Germany, European unity and the transatlantic alliance. Even if Berlin deals with criticism within the European Union, it is clear that the White House will not want to give the impression that the new administration is following a softer course towards Moscow just weeks after Joe Biden's inauguration. Even if he wanted to, Biden cannot ignore the strong consensus against Nord Stream 2 in the US Congress. For Germany, this means that if the German authorities continue to support the construction of the gas pipeline, then the new "honeymoon" with the Americans could quickly end, barely starting after Trump's departure.

But it would be just as bad an idea to stop the project by a decision of the German government. In addition to possible litigation and damage payments, billions of ruins will remain at the bottom of the Baltic. The second problem is the supply of gas to Europe. Russia remained a reliable energy supplier for Germany, which never used fuel supplies for political purposes. If the German government stops the project, nothing will stop Russia from responding appropriately. Therefore, the Germans have no other alternative but to finish building the pipe. But there is an option to make the operation of the gas pipeline dependent on political and economic conditions, the politician says. That is why Ischinger proposes to introduce an “emergency stop” mechanism for gas supply if Russia does not keep its obligations and stops using the gas transportation system of Ukraine. This mechanism will increase the confidence of Kiev, Warsaw, Brussels and Washington in the project.

The second measure could be the creation of a "Euro-Atlantic Energy Agreement". The EU, Eastern European countries and the USA could become its participants.

And the third measure could be the transfer of responsibility for the operation of the gas pipeline to the Russian side. In view of the significant deterioration of the situation due to Russia's hacker attacks on Western partners, the poisoning of Alexei Navalny, contract killings on the territory of European countries, Russia itself must create the prerequisites for improving relations. And in any case, Berlin is obliged to consult with the European Union, partners such as Ukraine, and Washington on all emerging issues.

This is not an official proposal from the European Union, says Igor Yushkov, a leading analyst at the National Energy Security Fund, an expert at the Financial University under the Government of the Russian Federation, but a proposal from expert circles. This is not a requirement of the European Union and regulators, and therefore it is not binding. But if it is adopted, then Russia will consider any of these points as sanctions. Gazprom proceeds from the fact that legislation is in force in Europe, within the framework of which the Nord Stream 2 project is being implemented. It states that Gazprom undertakes to build a gas pipeline, which it is doing.

"If the legislation is changed exclusively for Nord Stream 2, then in fact these will be sanctions, and the Russian side will be responsible, as it said in 2014, there should almost always be retaliatory sanctions, and it is clear that the exchange of sanctions strikes is not beneficial to the European Union, and they don't want to do it. I think that any of these proposals will be perceived negatively both from Russia and, in fact, from Brussels", - says Igor Yushkov.

In addition, one of the points of these proposals, from the Russian point of view, has already been fulfilled. American opposition did not begin yesterday. Back in 2019, it was said that Nord Stream 2 was being built in order to deprive Ukraine of transit money for pumping gas, and the likelihood of an economic collapse in the country is high. Then tacit agreements were reached. Russia and Ukraine signed a 5-year contract guaranteeing Ukraine's transit income. Regardless of which route the gas goes to Europe, Ukraine will receive its $ 2 billion a year.

"The demands to synchronize the operation of Nord Stream 2 and the Ukrainian GTS are absurd, because everyone understands that Russia is not concluding a new contract but the supply of gas to Europe. This is the same gas, the delivery route simply changes. The Europeans do not conclude new contracts, therefore, Europe's dependence on supplies through Nord Stream 2 does not increase, because it already buys these volumes, they just go along a different route", - explains Igor Yushkov.

The Russian side is confident that the Americans are blocking the construction of Nord Stream-2 in order to increase their share of the European energy market by themselves. The Germans do not want to pay more, because the cost of energy is included in the cost of all manufactured goods, and this reduces their competitiveness. The previous American President Trump openly put pressure on the German federal government, reproaching Merkel for the fact that the Germans buy cheap gas from their enemies, while they themselves are not investing enough in defense. Forcing them, the Americans, to maintain their bases in Europe and take some of the costs for themselves. Biden will not so openly and offensively lecture the German Chancellor in front of the cameras:

"Biden is a classic politician. He is predictable, he will never say such things in front of cameras, in the open part. He will say that we will build cooperation, we will take into account your interests, although in reality he will press and say that you should develop economic contacts with us and promote the purchase of American LNG. I think that in this regard, the general US policy will not go anywhere, but it will be more acceptable for the Europeans".

The biggest question is whether this pipeline will be completed and whether it will work.

Money for the completion of the pipe is unlikely to be a problem. Despite the fact that the German Wintershall Dea , the Austrian OMV, and the Dutch Shell announced the termination of financing, they have already invested most of the amount from their obligations. Igor Khmelyov, Associate Professor, Department of International Business and Customs, PRUE G.V. Plekhanova points out that the operator of the gas pipeline and 100% subsidiary of Gazprom, Nord Stream-2 AG, notified the partners that there is enough money on the company's accounts to complete the project:

"Are there any reasons not to trust this information? Hardly. If the project was 5% complete, implementation concerns would be well founded. But the search for the possibility of financing 5% of the required amount for such a giant as Gazprom does not seem to be an insurmountable task".

Gazprom has problems with insurers who refuse to participate in this project en masse due to US sanctions. This means that in the event of a project freeze or shutdown, Gazprom itself will have to cover losses. If we talk about the offshore part of the project, then Gazprom's investments amounted to 5 billion euros. In addition, Gazprom spent money on expanding the transport system from Yamal to Ust-Luga. Experts do not know exactly how much was spent, but these costs amount to billions of dollars. If the pipeline does not start, the offshore part of the project, or 5 billion euros, will have to be written off. In the onshore part, the money will not be wasted, since the concern is building an LNG plant and a gas chemical cluster in Ust-Luga. Billions spent can be counted towards system expansion costs.

Nobody knows Gazprom's contracts with contractors and partners except themselves. The newspaper Ru quotes Environment Minister Svenia Schulze, who warned that Germany may have to pay damages if the construction of Nord Stream 2 is halted.

Igor Yushkov disagrees with this point of view:

- Most likely, no fines are expected for Germany, because Gazprom will not dare to sue. There can be two scenarios here, why it may not be completed or not put into operation. First, if the EU imposes official sanctions, banning the completion, then all construction permits will be canceled. And then you will not file claims with European courts, because the defendant can say - and we have such a law if the law on sanctions is adopted. On the contrary, they will obey the law and nothing will be violated.

The second shutdown scenario is if Gazprom cannot find a company that certifies the gas pipeline. Then he will not receive a permit for commissioning. Then the German side may say: sorry, you must provide a list of documents, but you did not provide them.

The Russian side hopes that the economic interests of Germany will prevail, especially in conditions when there are no more than six months left until the completion of construction. German expert on Russia Alexander Rahr said in an interview with Expert magazine that he was convinced that a gas pipe is needed not only for Gazprom, but also for Germany. He points to another political threat:

- I think that this pipeline project, in any case, needs to be completed before the elections to the Bundestag in September 2021. Because then the German government can change, and those forces that can come to power - for example, the Green Party - can stop this project. There is such a risk. And I don't see any other risks. Therefore, there is enough time before the final completion of this project.

TO THE POINT:

The weather was favorable in the Baltic Sea, and the pipe-laying barge Fortuna started laying nearly one kilometer of Nord Stream 2 per day. According to the navigation portal Marinetraffic, the pipe-laying barge Fortuna picked up its laying speed sharply after favorable weather set in the southern part of the Baltic Sea. For the second day, the vessel builds 925 meters each - one nautical mile in two days.

The barge is currently serviced by four supply vessels. One of them, Murman, carries out underwater monitoring of the pipeline laying. From the port of Mukran, which is the base of the project in Germany, the Baltic Explorer also follows to the work site. Some supply vessels are engaged in the supply of pipes.

In total, the pipe-laying barge has completed 9 kilometers of its Nord Stream 2 string. She also has to lay 40 kilometers in Danish waters and 13.9 kilometers in German.

The pipeline string with the longest unfinished section of 80 kilometers will obviously be completed by the Akademik Chersky pipelayer. He is in the port of Wismar and announced today via AIS that he plans to start offshore operations by March 5.