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Putin: Nord Stream 2 Would Supply Gas That Existing Line Removes

gazprom
Russian contractors complete the final weld on the Nord Stream 2 pipeline, Sept. 2021 (Gazprom)

Published Dec 30, 2021 4:51 PM by The Maritime Executive

Critics of Russia's Nord Stream 2 subsea gas pipeline have warned for years that the Kremlin could use its energy supply for political leverage over European customers. Though Russia has always insisted that Nord Stream 2's gas is strictly business and will never be used for negotiation, its critics say that Moscow is already using its gas supplies as a bargaining chip - to ensure approval of Nord Stream 2. 

If activated, Nord Stream 2 would add add about two trillion cubic feet of natural gas export capacity per year for Gazprom, on top of the capacity of the existing Nord Stream pipeline and additional terrestrial lines passing through Ukraine and Poland. Nord Stream 2 is physically complete, but it is still awaiting final sign-off from German and European regulators. That decision is not expected until the first half of 2022 - but Moscow is working to accelerate the process. 

As Europe struggles through a wintertime natural gas shortage, Russian state-owned gas firm Gazprom is selling less gas than usual to the European market. Though it is meeting all of its long-term supply contracts, its total supplied volume hit a six-year low point in November - down about 25 percent compared to 2019, before the pandemic hit. With import supplies down and winter heating season in full swing, EU natural gas prices are up, hitting a record of about $57 per mmbtu last week. 

These wild prices have attracted LNG traders, who have diverted Asia-bound cargoes to Europe in hopes of doubling what they would earn in the Pacific market. The prospect of turbocharged earnings has not, however, appeared to motivate the biggest EU market player - Gazprom. Instead of boosting supplies to take advantage of a record business opportunity, the company has reversed flow on the Yamal-Europe line, pulling natural gas out of a superheated market in order to sell it for less in Russia. 

The Yamal-Europe pipeline is currently flowing east, bringing gas out of Germany (Gazprom)

On Wednesday, Russian President Vladimir Putin extended a promise to fix the European shortage. There are several pipelines from Russia to Europe, but there is a new pipeline that could immediately boost the supply on the German gas network, Putin suggested. 

"[Nord Stream 2] will certainly help stabilize prices on the European markets," Putin promised, speaking at a meeting of Gazprom officials. "It would undoubtedly affect prices on the spot market, and consumers in the countries that use the Russian gas will immediately feel it."

He did not explain why the new subsea pipeline would flow west while the Yamal-Europe line flows east, removing gas from the same network in northeastern Germany.

Strategic flexibility

Western politicians and defense analysts have long warned that Nord Stream 2 would give Russia a free hand to threaten Ukraine without disrupting its gas-export business to Europe. By routing gas volumes under the Baltic, away from the territory of its smaller Eastern European neighbors, Moscow could continue to earn revenue on EU gas exports - even if it begins a new conflict on its southern border. It would also have the freedom to cut off gas supplies to non-cooperative governments in Kiev or Warsaw, without affecting downstream customers in Germany. 

Over the past six weeks, Russia has deployed an estimated 70-90,000 troops for exercises along Ukraine's northern borders, including the border with Russian-aligned Belarus. Ukraine's general staff believes that these forces will be ready to conduct an invasion as early as late January, Ukraine Brig. Gen. Kyrylo Budanov said in late November. The general assessed that the attack will come from multiple directions, including amphibious assaults at the strategic ports Odessa and Mariupul. 

U.S. intelligence officials have told the Washington Post that they have detected preparations for a massive multi-front offensive with up to 175,000 troops, accompanied by heavy armor and artillery. As tensions rise, the carrier USS Harry S. Truman has been held in the Mediterranean to provide a measure of reassurance to allies, but the White House has been clear that it does not intend to be pulled into a boots-on-the-ground conflict in Ukraine. Instead, it is threatening Moscow with sanctions in the event of an invasion - including sanctions on Nord Stream 2.

Though the scale of the invasion would be unprecedented in recent times, the pattern would not. Russia invaded and annexed Ukraine's Crimean Peninsula in 2014, and it has successfully integrated the territory into the Russian economy, defying Western sanctions.