Gazprom working to preempt transit risks for Europe / News / News agency Inforos
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Gazprom working to preempt transit risks for Europe

The probable rescheduling of the Nord Stream 2 launch requires to speed up gas accumulation in Gazprom's European storage facilities

Gazprom working to preempt transit risks for Europe
Context:

In late August Nord Stream 2 AG, the operating company of the Nord Stream 2 project, reported that the construction of the gas pipeline's offshore part was completed by 75% of its total length. "A total of 1,855 kilometers of the Nord Stream 2 gas pipeline were laid along the bottom of the Baltic Sea in the waters of Russia, Finland, Sweden and Germany. This is about 75 percent of the total length of the two legs. Thus, Nord Stream 2 AG proceeded to laying the final quarter of the pipeline," the operator said in a statement.

But there are still some legal obstacles on the path, with Denmark not yet having given permission to lay the pipe in its waters. For all that, Gazprom's top management is optimistic about the problem. "We've named the estimated time we need to complete the construction after obtaining permission from Denmark. Therefore, we are still in a risk-free zone in terms of the project's date of term," head of the gas giant's Financial Department Alexander Ivannikov said during a conference call.

The prospects for promoting Nord Stream 2 is closely linked to the future transit of Russian gas through the territory of Ukraine – the problem is being given greater focus as the fall has begun. On August 28, Russian President Vladimir Putin and German Chancellor Angela Merkel conferred by telephone on a number of issues, including the possibility to accelerate negotiations on future contracts for gas transit via Ukraine (the current transit contract between Gazprom and Naftogaz will lose effect starting January 1, 2020).

But there is no exact date for negotiations in the Russia-EU-Ukraine format. During the Eastern Economic Forum Russian Energy Minister Alexander Novak said he would soon discuss the date and venue of trilateral gas transit talks with his colleagues from the European Commission and Ukraine. "We confirm our readiness to hold trilateral consultations. Upon returning from a business trip from Vladivostok, we will contact our colleagues and agree the time," Novak said. He also reminded of an earlier agreement to hold the meeting in the second half of September. Formerly, the European Commission offered Russia and Ukraine to meet between September 16 and 22.

However, it is already clear that the upcoming talks are unlikely to be a game-changer. Gazprom keeps accumulating gas in European underground storage facilities. Naftogaz is also taking a cautious approach – the goal for injecting 20 billion cubic meters into storage ahead of the upcoming heating season is feasible, with the present reservoir content amounting to some 18 billion cubic meters in Ukraine.

The purchase of gas under reverse schemes bypassing Gazprom's direct supplies is much more expensive, given that the Ukrainian authorities' political ambitions prevail over commercial logic. Besides, the leadership of Ukraine is looking for energy support from the Poles and at the same time is actively promoting the project's harmfulness for all of Europe.

For political reasons Ukraine is ready to overpay for the supply of not only reverse gas as an alternative to Russia's (in late August an intergovernmental agreement was signed with the Poles and the Americans) – thus, part of the liquefied natural gas (LNG) from the United States coming to Poland will be redirected to Ukraine.

It is nevertheless clear that this supply substitution scenario is a short-term one. Financing such an alternative will prove a huge problem for Ukraine. The Naftogaz group is really interested in extending the contract with Gazprom for an extended period of time with a guaranteed pumping of considerable gas volumes. Gazprom has a different objective, i.e. to get through the coming winter without failures in the European export direction. After all, Nord Stream 2 may not be launched until the end of 2019 due to delays over Danish permits for laying the pipes.

Although the conflict between the Danes and the United States over purchasing Greenland (the Danish authorities are adamantly opposed to any discussion for selling the island to the Americans) may well move Copenhagen forward in loyalty to Gazprom and finally give the go-ahead to building the Nord Stream 2 in its waters. The German newspaper Die Welt wrote that by cancelling his visit to Denmark, US President Donald Trump is contributing to the construction of Nord Stream 2.

Another German newspaper, Handelsblatt, noted that possible US sanctions against the Saipem and Allseas companies involved in building the pipeline could hinder the development of US oil and gas missions in the Gulf of Mexico. Adding zest to the situation is the fact that the mentioned companies that own pipe-laying vessels, are not only working in the North and Baltic seas, but also in the Gulf of Mexico, executing orders by American Chevron and ExxonMobil. Representatives of the US oil and gas industry have repeatedly noted that Saipem and Allseas are vital and irreplaceable in the Gulf of Mexico.

Meanwhile, head of the Austrian OMV energy group Rainer Seele considers the construction of the Nord Stream 2 gas pipeline being proceeded according to schedule. His optimism is generally justified today. Even a rescheduled launch of Nord Stream 2 does not threaten the European Union with a gas deficit in the coming winter. Gazprom has prepared a safety net, creating considerable gas reserves in European underground storage facilities. NOVATEK has also promised to deliver more LNG to Europe in the winter if needed.

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