Page 4 - FSUOGM Week 24 2019

FSUOGM COMMENTARY FSUOGM
Gazprom warns Denmark over Nord Stream 2 delay
Denmark’s delay in issuing permits will not cause the project any serious dif culty, but its launch this year looks an increasingly distant prospect
DENMARK
RUSSIAN state gas exporter Gazprom has warned it may seek compensation from Den- mark for losses sustained as a result of potential delays at its Nord Stream 2 project.
Russia has already laid more than half of Nord Stream 2, which once completed will pump up to 55bn cubic metres per year of gas under the Bal- tic Sea to Germany. It received necessary permits to run the pipeline through German, Finnish, Russian and Swedish waters last year. But more than two years a er ling applications, it is yet to get clearance from authorities in Copenhagen to build the section that passes through Danish territory.
Gazprom’s wholly owned Nord Stream 2 subsidiary said in April it had been asked by Danish regulators to submit paperwork for an alternative route through Denmark’s exclusive economic zone (EEZ) south of the island of Bornholm. The company, which already has two route applications with Denmark pending, dismissed the request as “a deliberate attempt to delay the project’s completion.”
Signaling growing frustration on the Russian side, Gazprom Board Member Sergei Kuznets suggested on June 18 that the company could sue Denmark over its failure to reach a decision.
“ ey have responsibilities that may sooner or later emerge,” Kuznets said at a press con- ference. “As far as I know, the Nord Stream 2 company has hinted that investments that have already been made and delays over gas pipeline route coordination may result in losses that it willsoonerorlaterbenecessarytocompensate.”
Gazprom insists that construction work is running on schedule, with 58.7% of the 1,225- km pipe already in place as of June 17. But in its third route application, published by the Danish Energy Agency, it warned that Nord Stream 2 may not be ready to transport gas until the sec- ond half of 2020, rather than at the end of this year as initially planned.
Nord Stream 2 is a divisive project, with critics arguing it will increase the EU’s reliance on Russian gas and expand Moscow’s politi- cal influence over the bloc. Former German Chancellor Gerard Schroeder, who now serves as Nord Stream 2’s chairman, recently claimed “US political pressure” was behind Denmark’s reluctance to issue permits. Washington has
vehemently opposed the pipeline, with a group of US senators last week introducing a bill that would impose sanctions on companies involved in its construction. Moscow has responded by accusing the US of simply trying to protect the commercial interests of its LNG exporters.
Danish approval is not the only regulatory obstacle facing Nord Stream 2. In April, the EU Council approved a gas directive extending the bloc’s energy market rules to pipelines coming to and from third countries. If applied to Nord Stream 2, this legislation would require Russia to set up a company independent of Gazprom to manage the pipeline, as well as share its capacity with other suppliers.
Russian options
There are ways Russia could get around this complication. Moscow could in theory break up Gazprom’s monopoly over pipeline gas exports – something that the country’s independent pro- ducers have been lobbying for for years. But the government has shown little inclination that it will pursue this option. A more likely outcome would be for Gazprom to enlist the help of domestic or foreign partners to help run Nord Stream 2. It could also get European buyers to take ownership of gas prior to its delivery via the pipeline.
Given the level of support for Nord Stream 2 from Germany and other countries set to receive its gas, we do not anticipate the US making good on its sanctions threat either. Meanwhile, even if Denmark were to block construction, Gaz- prom has drawn up a contingency plan to bypass Danish waters by rerouting the pipeline north of Bornholm. Doing so would incur added costs and increase the likelihood that Nord Stream 2’s launch slips behind schedule. Beyond lost revenues from gas sales, this would weaken Russia’s hand in nego- tiations with Ukraine to forge a new gas transit contract once their current agreement expires at the end of this year.
Gazprom wants to use Nord Stream 2 to pump Europe-bound gas supplies that currently ow through Ukraine. But it will continue using the Ukrainian route to some decree, as Nord Stream 2 alone is not enough to divert the 86.8 bcm of Russian gas that passed through the country last year.™
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w w w . N E W S B A S E . c o m Week 24 19•June•2019