Nord Stream 2 flounders as partners withdraw

By Annemarie Botzki 16 August 2016 12:34 GMT
Pipe supply contracts for Nord Stream 2 have already been awarded to Europipe, OMK and ChelPipe. (Gazprom) Pipe supply contracts for Nord Stream 2 have already been awarded to Europipe, OMK and ChelPipe. (Gazprom)

The Nord Stream 2 pipeline was dealt another blow on Friday when Gazprom’s prospective European project partners withdrew their applications to form a joint venture.

While some say Gazprom will continue to push the project forward while its European partners look at legal alternatives, others have suggested the withdrawal could prove fatal.

Partners Engie, OMV, Shell, Uniper and Wintershall decided to abandon their plans after the project failed to gain clearance from Poland’s competition regulator. The application to set up the JV was filed by the six consortium members last December.

The partners needed approval from the Polish and German monopoly watchdogs. Although German authorities gave the project the go ahead at the beginning of 2016, Poland’s UOKiK came out against the pipeline at the end of July.

The consortium is now looking for legal ways push the project ahead despite Poland’s disapproval.

"We are currently investigating all legal possibilities how to go ahead with the project," a spokesperson for Wintershall told Interfax Natural Gas Daily. The spokesperson said it was not yet clear if there were any legal alternatives to forming a JV.

"The project is still of great importance for the German and European gas market, and we are still interested in the project and in contributing to it," he added.

The prospective partners said in a statement that their decision will "not affect the continuation by Nord Stream 2 AG of the construction of the Nord Stream 2 pipelines as planned, including its scheduling".

Andreas Goldthau, professor at the department of Politics and International Relations at the Royal Holloway University of London, agreed the regulatory blow might not mean the end of the project. "It is way too early to sound the death knell for Nord Stream 2. Gazprom is committed to diversifying its export routes, and it is ready to heavily invest in transit security."

"Gazprom may well go it alone, but it is indeed unclear whether it, under the new circumstances, remains the priority project. This is less an issue of funding – Gazprom still has deep pockets and would make bold choices if need be – but one of EU regulation and internal support possibly fading away," Goldthau said. A lack of European partners and improved Turkish-Russian relations could see Gazprom prioritise Turkish Stream over the Nord Stream expansion, he said.

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said that, if the project is to still be completed by 2019, Gazprom would need to finance the entire offshore section itself.

"There could be financial arrangements between Gazprom and the shareholders which fall short of a JV – but I don’t know what these could be," Stern said.

According to Stern, the partners could also press on with the onshore lines, "without being certain that Gazprom can finance the offshore section, and therefore running the risk that these could be stranded assets".

Nord Stream 2 placed an order for pipe in March with Russian companies United Metallurgical and Chelyabinsk Pipe-Rolling Plant, and Germany’s Europipe.

But even with the pipe orders already having been placed, the withdrawal of the European partners make the project untenable from a competition perspective, said Anders Åslund, senior fellow in the Dinu Patriciu Eurasia Center at the Atlantic Council.

"I can’t see how this project can continue at all because the main concern was EU energy and competition policy – Gazprom was trying to avoid that by not having a majority in this joint venture," he said.

Third Energy Package

The European Commission was expected to publish a statement on whether or not the EU’s Third Energy Package (TEP) applies to offshore pipelines this July. The decision will be of great significance to Nord Stream 2. If the TEP rules prohibiting companies from owning pipelines through which they transmit and sell their own gas do apply, it would complicate the project even further.

"It has no relevance for the commission that Gazprom has wasted money on this project. I don’t think they will get permission to build this pipeline," Åslund said.

"The European authorities were very hesitant before and Maroš Šefcovic [the EU’s commissioner for Energy Union] has been strongly against it – and I think at this stage it is a closed case," he added.

The EU is keen to keep Ukraine – which is a member of the Energy Community – as a key transit country for Russian gas. The current transit agreement brings in annual revenues of around $2 billion for Ukraine.

If built, Nord Stream 2 would double the transmission capacity of the existing 55 billion cubic metre per year Nord Stream connection, which avoids Ukraine. The expansion could be operational by 2019, the expiry date of Russia’s current transit contract with its western neighbour.

Nord Stream 2’s chief financial officer, Paul Corcoran, told Interfax Natural Gas Daily last month the pipeline will offer clear economic advantages over the Ukrainian route, however.

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