Nord Stream 2 gas pipe: first flows and alternative supply routes in case of delays
LONDON (ICIS)–Pre-commissioning activities might delay the commissioning of the Nord Stream 2 pipeline, which might prompt Russia’s state-controlled company Gazprom to book additional capacity via Ukraine, experts told ICIS.
The first of the two lines forming the Nord Stream 2 link was finished earlier in June and pre-commissioning activities are underway. ICIS outlines how the next steps may delay commercial flows, and which are the potential alternative delivery routes for Russian gas this winter.
Nord Stream 2 is a pipeline owned by Gazprom with a capacity of 55 billion cubic metres (bcm)/year, or around 12% of total gas demand in 2020 in the EU and Britain.
FIRST LINE START
The finished line could technically start flowing gas before winter.
Igor Yushkov, an expert of the National Energy Security Fund and the Financial University under the government of the Russian Federation, told ICIS that pre-commissioning would last 1.5-2 months, which would mean an August commissioning.
The other line might be finished by the end of September and before German elections, although the project certification process will not be finished for sure by then, a German industry source said.
Gazprom aims to have both lines fully operational by the start of heating season in Europe (typically late October, early November), but they will try to reach this stage faster, Yushkov said.
Meanwhile, Jonathan Lagarde, risk manager at a UK-based energy company, and Thierry Bros, energy professor at Paris-based Science Po university, argued that no gas will flow in Nord Stream 2 this year. Even if there was any, the ramping up is likely to be as slow as on the Power of Siberia pipeline , Bros said. This pipeline connects Russia to China and came online in December 2019. It delivered 4.1bcm in 2020 and is expected to reach the full contracted 38bcm/year in 2024. Nord Stream 2 may be tested in 2021, but not started, Bros said.
The commissioning depends on an independent third-party certification company certifying the project.
DNV GL, the certifier initially contracted, is not working on the project and said on 11 June that this will not change.
Even if they rejoined, DNV GL might not be able to issue a certificate as they stopped monitoring the construction of the pipeline when they left the project in January 2021.
Certifying the pipes are safe to use is the first step. After that, the German regulator will decide if the project complies with EU rules mandating the separation of the pipe’s owner from the gas supplier and third-party access to the pipe’s capacity. This step may be lengthy, especially as currently Gazprom fully owns the pipe and the gas that will flow in it.
The complexity of EU rules leaves room for a lot of loopholes, and with good lawyers Gazprom could still find a way to use all of Nord Stream 2’s 55bcm/year capacity, Bros opined.
But if Nord Stream 2 does not start delivering this year, Gazprom will likely need additional transit capacity via Ukraine.
In 2020, Gazprom had booked 65bcm of Ukrainian transit capacity, but only sent 50.7bcm via Ukraine to the Hungarian and Slovak borders. As of 1 June 2020 it had sent 19.1bcm.
In 2021, Gazprom booked 40bcm and sent 19.5bcm as of 1 June.
But this year demand rose 15% above 2016-2020 average in the eleven largest European gas markets between January-May and European stocks excluding Ukraine are at an eight-year low.
“I would expect Gazprom to book extra transit capacity firstly in Poland, which is cheaper and where Gazprom controls the Belarussian section, and then also in Ukraine,” senior fellow at the Centre for Eastern Studies Agata Loskot-Strachota said. Booking monthly or shorter-term capacity is more expensive but it gives Gazprom flexibility and helps maintain uncertainty regarding supply volumes which may create additional pressure to get Nord Stream 2 ready by winter time, she added.
In May, Gazprom did not book the additional 63.mcm/day auctioned at the Russian-Ukrainian border for delivery in June, despite European hub prices reaching some of the highest levels since 2018.
By not booking additional transit capacity via Ukraine, Gazprom “dries” the market so that European players wish to see additional supply capacity like Nord Stream 2 faster, Yushkov said.
Germany has been supporting the Nord Stream 2 project so far despite the strong disapproval of some EU member states in east Europe. However, the position of the German government may shift once Angela Merkel leaves office after the elections in late September.
The Greens are very likely to be an important part of the next governing coalition after the elections and they are strongly opposed to Nord Stream 2, a German Parliament source told ICIS. It is possible that a new government might politically in one form or the other intervene against using an already-built Nord Stream 2, the source added.
But Ernst Klaus, German left MP and chairman of the economic and energy committee, argued that “it does not matter who will lead the new federal government, because ultimately, this is about the reliability of government decisions in Germany, which were the prerequisite for investments worth billions. Overturning such decisions after the fact would result in high recourse claims.”
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