NORD STREAM 2 FOR RUSSIA

PLATTS - 17 Sep 2020 - Russia has called for an end to the "politicization" of the Nord Stream 2 gas pipeline as the political debate over the controversial project enters overdrive.

Politicians across Europe have waded deeper into the debate since the poisoning of Russian opposition politician Alexei Navalny on Aug. 20. with new calls for Nord Stream 2 to be halted in response to the incident.

The project has already divided Europe, with Germany and a number of other European countries praising it for bringing added gas supply security, while eastern European nations say it will give Moscow too much political leverage over Europe.

The US is also strongly opposed to the pipeline, its threat of sanctions having done most to leave the project as yet unfinished.

European Commission President Ursula von der Leyen made a veiled reference to the project and its political relevance in her State of the Union Address on Sept. 16.

"To those that advocate closer ties with Russia, I say that the poisoning of Alexei Navalny with an advanced chemical agent is not a one off," von der Leyen said.

"We have seen the pattern in Georgia and Ukraine, Syria and Salisbury –- and in election meddling around the world. This pattern is not changing –- and no pipeline will change that," she said.

Russia says Nord Stream 2 is a commercial project -- backed by five European energy companies -- and should not be used for political point-scoring.

"As for the gas pipeline, then perhaps we should stop mentioning it in the context of any politicization," Russian presidential spokesman Dmitry Peskov was quoted as saying by the Tass news agency.

"This is a commercial project that is in the interests of both Russia and the EU countries, primarily Germany," Peskov said.

German support

Before the Navalny poisoning, Germany continued to back the project at the highest political level, with Chancellor Angela Merkel slamming US extra-territorial sanctions and insisting it was "right" to complete the line.

Reports this week suggest Germany was even prepared to try to persuade Washington to drop its sanctions threat in return for strong state support for two planned German LNG import terminals.

According to Germany's die Zeit, finance minister Olaf Scholz wrote in a letter to his US counterpart Stephen Mnuchin that Germany could increase its support for the terminals to up to Eur1 billion.

The German finance ministry told S&P Global Platts that it would not comment on individual reports.

The message, though, seems to be that Germany would be happy to help facilitate US LNG imports while also keeping Nord Stream 2 alive.

It has paid the US lip-service in the past.

Germany's economy minister Peter Altmaier in September 2018 went as far as to say that a German LNG import terminal would be a "gesture" to the US, which wants to secure a bigger market in Europe for its gas.

Three terminals are under development in Germany: the Uniper-backed floating LNG project at Wilhelmshaven; the German LNG project at Brunsbuttel; and Hanseatic Energy Hub's Stade LNG import project.

Germany has already approved a law that supports the development of LNG infrastructure by paying for the gas grid connection for new LNG terminals, though the amounts of money in question are much lower than the figure mentioned by die Zeit.

Mood shift

But in any case, the reported German offer came two weeks before the Navalny poisoning, and the mood in Germany has shifted significantly since then.

German foreign minister Heiko Maas warned Sept. 6 that its support for Nord Stream 2 was not unconditional.

"I hope that the Russians will not force us to change our stance on Nord Stream 2," Maas said in an interview with the Bild am Sonntag newspaper.

Government spokesman Steffen Seibert said Sept. 7 that Chancellor Merkel "agreed" with the foreign minister's remarks.

Maas said any action over Nord Stream 2 would, however, have to take into account the economic "consequences" that it would cause.

"One thing is clear: when we think about sanctions, they should be as targeted as possible," he said.

Norbert Roettgen, chairman of the German parliament's foreign affairs committee and a candidate for the leadership of Merkel's CDU party, said the EU should consider a strong, coordinated response against Russia, including measures to halt Nord Stream 2.

But that seems unlikely, with Austrian Chancellor Sebastian Kurz saying Sept. 15 that the project was "commercial" and should not be linked to the Navalny case.

"Nord Stream 2 for us is an economic project, a positive project, because we believe that it is good to have more diversification and to be able to use different routes for energy supply to Europe," Kurz said.

Analysts at Eurasia Group also said in a recent note that Nord Stream 2 was still seen to be too critical for Germany's economic and political interests to be called off.

Instead, Merkel can try to use the project as leverage against Russian President Vladimir Putin, "while keeping all options on the table," it said.

Project status

Nord Stream 2 would double the capacity of the gas corridor via the Baltic Sea to Germany to 110 Bcm/year and would reduce the need for Russia to use Ukraine as a transit country for gas supply to Europe.

Critics of the project say it would concentrate too much gas supply into Europe on one route and one source.

However, backers of the projects -- which include five European energy companies (Shell, OMV, Engie, Uniper and Wintershall Dea) -- say Nord Stream 2 is needed to bring additional gas supply security to Europe.

It remains unclear when and how the Nord Stream 2 operating company will lay the final 160 km of the pipeline in Danish waters.

The company has to first inform the Danish authorities of its updated work plan.

The US in December last year implemented legislation that threatens sanctions against any entity laying Nord Stream 2 pipe, which prompted Switzerland's Allseas to immediately halt its pipe laying work.

Expanded sanctions against the project are also now under consideration that would target more companies involved in laying the line's final segment, including service providers and insurers.

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