Stakeholders confident in Nord Stream 2’s year-end deadline

Author: Diane Pallardy

2019/06/12

LONDON (ICIS)--Nord Stream 2’s operator and investors are confident the pipeline, which will double Gazprom’s annual supply to Germany can still be completed by the end of the year, despite potential setbacks.

Uncertainty remains over when Denmark will provide permissions which will allow the pipe to cross its waters.

Nord Stream 2 is set to double the existing Russia-to-Germany pipeline capacity to 110 billion cubic metres/year and is due to come online by the end of 2019. It will be a key supply route for Russian gas to Europe, particularly as Russia’s transit contract with Ukraine will expire at the end of 2019.

(An image of the Bovanenkovo field in the Arctic, the source of gas that will flow through Nord Stream 2 pipeline. Photo by Diane Pallardy)

OMV’s senior vice president for gas Reinhard Mitsheck said Nord Stream 2 will be necessary not only for northwest Europe but also centraleast and southeast Europe supply. OMV is a key investor in the pipeline, along with Engie, Gazprom, Shell, Uniper and Wintershall.

“We potentially will need to increase imports in the future because all EU domestic production sites are declining,” Mitsheck said.

“Transit agreements will expire in 2019 and 2020 so it is important to have a reliable supplier. Of course there is LNG, however, if global prices change LNG prices could change from one day to another, therefore we need the existing pipes, new pipes like Nord Stream 2, TurkStream and the southeast corridor, and LNG.”

Nord Stream 2’s chief project officer Henning Kothe said there would be a risk of higher European gas prices if Nord Stream 2 does not come online as planned.

“The EU will have to import more LNG and this price will be made in Asia, which we have seen in the past is substantially higher.”

He estimated that Nord Stream 2 would represent a benefit of €7.90-24.4bn per year for European consumers from 2020 and €9.7-26.9bn per year from 2030, depending on the state of the global LNG market at that time.

According to the Oxford Energy Institute, if Denmark grants a permit later in the autumn, winter weather conditions in the Baltic Sea could hamper the timely completion of the pipe . But Steffen Hartmann, communications specialist at Nord Stream 2 AG told ICIS the company has laid pipes in winter in the past and was still confident there would be time to complete the project by the end of the year in that scenario.

DANISH PERMIT

Denmark has not responded to any of the two routes Nord Stream 2 applied for in 2017 and 2018 and asked for a third route to be investigated in March 2019. The Danish Energy Agency says this southeastern route is more appropriate based on environmental and safety parametres including shipping impacts.

A public consultation on the third route will end July 10, 2019.

Nord Stream 2 has started the application process as a risk mitigation step.

It remains uncertain which route Denmark will agree on, if it will, and when.

“It is not currently possible to say how long this process [public consultations and the assessments of permit applications] will take and when a permit can be issued, as it depends, inter alia, on the number and content of the consultation responses received and any consultation with countries in relation to the Espoo Convention,” said a spokesmen from the Danish Energy Agency.

According to the United Nations convention on the law of the sea , in the EEZ all states can lay submarine cables and pipelines, and use the sea for the operation of submarine cables and pipelines.

This means Denmark could delay the pipe’s completion but not cancel it.

“We trust the question of permitting in Denmark is just a question of time now, if it is a fair treatment,” Nord Stream 2’s Kothe said.

GAS DIRECTIVE DEROGATION

The pipe’s developer sent a request to the European Commission in mid April to treat Nord Stream 2 as eligible for a derogation from the amended EU gas directive.

A spokeswoman for the commission said there were no new updates on the request for derogation as of 11 June.

Without a derogation the pipe would be subject to EU rules on transparency, ownership unbundling, third-party access and non-discriminatory tariffs.

Should the commission refuse to grant this, Nord Stream 2 “will have to wait and see how the amended directive is implemented in each country,” spokesman Jens Mueller told ICIS.

(Another image of the Bovanenkovo field in the Arctic, the source of gas that will flow through Nord Stream 2 pipeline. Photo by Diane Pallardy)