The fact that Nord Stream-2 could be operational in early 2020 puts additional pressure to reach a successful conclusion of EU-Ukraine-Russia gas talks, Oxford expert tells NE

 

The Nord Stream-2 pipeline obtained on 30 October the permit to construct its planned pipeline system in the Danish Exclusive Economic Zone (EEZ) south-east of Bornholm, paving the way for the Gazprom-led project to transport Russian gas from Russia to Germany.

“The Danish decision to grant the permit means that Nord Stream-2 can proceed to build the pipeline in the Danish EEZ – something that it could not possibly do when it did not have the permit,” Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on 31 October. “I think it could be possible to complete construction itself by January 2020, with some additional time being needed for filling and testing the pipeline,” she said.

The permit was granted by the Danish Energy Agency, which is in charge of the application, and covers a 147-kilometre-long route section. Preparatory works, such as the installation of concrete mattresses and rock placement for the crossing of existing infrastructure (cables and pipelines), and the subsequent pipelay, will start in the coming weeks. The Danish section of the pipeline will be built with pipes currently stored in Mukran, on the German island of Rügen, Nord Stream-2 said in a press release.

Yafimava noted that even if the European Commission has long been critical of Nord Stream-2, it is not within either the Commission or any EU Member State powers to stop construction. “The Nord Stream-2 operation is a different matter. Germany has to implement the amended Gas Directive by 24 February 2020 in respect of the German section of Nord Stream-2 while the amended Directive is being contested in courts, including in respect of unbundling, TPA (third party access) and tariffs requirements,” she explained.

“It would be for the German regulator to decide whether Nord Stream-2 is compliant and whether it could start operation prior to completion of certification but importantly there are multiple examples of other pipelines operating in the EU while their certification was pending,” Yafimava said, adding that thus some capacity of Nord Stream 2 could already be operational in the early 2020.

As of today, more than 2,100 kilometres of the Nord Stream-2 Pipeline have been laid. Pipelay has been completed in Russian, Finnish and Swedish waters, and for the most part in German waters. The construction of both landfall facilities in Russia and Germany is nearing completion.

Commenting on the fourth round of the EU-mediated trilateral talks at political level on the long-term transit of Russian gas via Ukraine to Europe, Yafimava argued that the fact that Nord Stream-2 could be operational in early 2020 puts additional pressure to reach a successful conclusion of trilateral talks. “This is because even if the trilateral talks break down with no new Ukraine transit contract signed by January 2020, the Danish decision would soften the impact of any such breakdown on European gas security as some Nord Stream-2 capacity would be available soon after  – and for a relatively short period during which it might not be available Europe should be able to withstand interruption due to high levels of storage – and could be used to export Russian gas,” the Oxford expert said.

However, Yafimava argued that Russia would still need the Ukrainian route and could be persuaded to conclude a long term Ukraine transit contract for smaller volumes to have additional export route optionality and flexibility also mindful of the fact the Germany regulator and possibly the European Commission have some power that could have an impact on Nord Stream-2 operation and utilisation by means of the amended Gas Directive and the Governance Regulation but only if Ukraine and the Commission will offer it a reasonable quid pro quo – such as agreeing on direct sales of Russian gas to Ukraine and/or out of court settlement of various arbitration/court claims.

“The EC would continue to be disappointed if it fails to mediate a deal where such quid pro quo – which would have to be acceptable to both sides – would be found and offered. The EC would be well advised to find such quid pro quo as any breakdown in negotiations, and hence in supplies, would undermine the image of gas in Europe and its potential role in the European energy transition, at the time when the EC is preparing its Decarbonisation Package where gas is understood to play a significant role,” she said, adding that notably without gas via full electrification the energy transition would be significantly more expensive and possibly technically not feasible.

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