The Nord Stream 2 gas pipeline explained

08 July 2021

After the success of the first Nord Stream gas pipeline, Nord Stream 2 is the newest gas pipeline running from Russia to Europe across the Baltic Sea. Like the one already in operation, Nord Stream 2 is set to create a direct link between Russian gas fields and European consumers. It will also ensure a highly reliable supply of gas from Russian to Europe, in the region of around ~55bcm per year.

At a time when Europe has seen a decline in domestic gas production and an increase in demand for imported gas, the construction and completion of such a project will be particularly significant in the not-too-distant future.

What is Nord Stream 2?

Nord Stream 2 is a 764-mile pipeline that will double the capacity of the existing undersea route from Russian gas fields to Europe alongside the already-constructed Nord Stream (which opened in 2011).

Nord Stream 2

Although it was initially expected to come online by the end of 2019, its completion has been delayed by US sanctions that forced Swiss contractor Allseas Group SA to withdraw its pipelaying vessels. At the time, there was only 100 miles of the link to go before completion. A small fleet of Russian vessels resumed construction in German and Danish waters in the winter of 2020/21. Since then, further progress has been made and the project is near completion.

So how did this second pipeline come about? In October 2012, following the completion of the first Nord Stream, its shareholders concluded that a second pipeline would be beneficial and economically feasible.

In April 2017, Nord Stream 2 AG - the project company responsible for implementing the pipeline - signed the financing agreements for the pipeline project with ENGIE, OMV, Royal Dutch Shell, Uniper and Wintershall. These five European energy companies will provide long-term financing for 50% of the total cost of the project.

In September 2018, pipelaying operations began in the Baltic Sea. The entire project is expected to be completed in 2021.

What is Nord Stream 2

Where will Nord Stream 2 cover?

Covering 750 miles, the entry point of Nord Stream 2 begins at the Ust-Luga area of the Leningrad Region. From here, the pipeline will travel across the Baltic Sea. Its exit point in Germany will be in the Greifswald area close to the exit point of Nord Stream.

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Why is Nord Stream 2 important?

As mentioned above, Europe has seen its gas production falling in recent years. The completion of Nord Stream 2 will help Germany secure a gas supply at a relatively low cost amid this fall in production.

With Russia supplying more gas to the EU, it's hoped that this will decrease the need to import more expensive LNG. This would also have the knock-on effect of decreasing the import price for remaining LNG volumes.

Through Nord Stream 2, Europe can rely on a functioning internal energy market where natural gas competes with other energy sources, and gas-exporting countries compete with each other.

It also provides an additional supply route that contributes to greater diversification and the security of supply for consumers, which meets the goals of the EU's energy policy.

The benefits of Nord Stream 2 mean that the project could also save about 14% of the EU's total carbon emissions from power generation, if natural gas from the pipeline is used to replace coal-fired power stations.

Nord Stream Process

The pipeline is also part of our decades-long effort to diversify our export options to Europe as the region moves away from traditional means such as nuclear and coal. Nord Stream 2 will allow for more competitive supplies of natural gas, helping to replace coal and providing back-up for renewables.

Is Nord Stream 2 environmentally compliant?

Yes. Despite the myth that Nord Stream 2 doesn't comply with EU law, Nord Stream 2 is being built in line with national, EU and international law.

Additionally, the pipeline is being built with the use of reliable technologies that were also used in the first Nord Stream construction project. The strong performance of the earlier pipeline provides a stamp of reassurance that Nord Stream 2 will comply with the highest environmental standards.

What issues face Nord Stream 2?

As mentioned earlier, US sanctions forced Swiss contractor Allseas Group SA to withdraw its pipelaying vessels which led to delays in the project's progress. Such sanctions were in line with the US's previous position under Donald Trump. After more than a year of threatening to do so, the US introduced these sanctions on 19 January - Trump's final day in office.

Pipelaying barge

Since then, however, the US - now under President Joe Biden - has softened its stance on sanctions, making a 2021 finish likely. Despite committing in mid-March to complying with the sanction’s legislation put in place, things have since changed.

On 19 May, the US decided to lift sanctions against Nord Stream AG and its CEO Matthias Warning, a key turning point in what has been a contentious issue between the US, Germany, and Russia. The news means the US administration will avoid further confrontations with Chancellor Angela Merkel's government, which has long been a supporter of the pipeline.

Despite the loosening of sanctions, the project is not without its hurdles. More recently, the project is in the middle of appealing amendments that are part of the EU Gas Directive.

Under the gas directive's 2019 amendment, the EU's Third Energy Package comes into play. This piece of legislation applies to the sections of offshore gas pipelines in EU member states where the first interconnection point with a gas pipeline is located. Essentially, this legislation opens up third-party access to the pipeline within German territories.

There is currently an ongoing appeal against German grid operator Bundesnetzagentur (BNetzA), who previously rejected an application to make Nord Stream 2 exempt from third-party access. Should the appeal be unsuccessful, then the Nord Stream 2 would be subject to German regulatory requirements and European rules regarding access when the pipeline goes into operation.

Despite these roadblocks, Russia has pointed out that Nord Stream 2 has continued with construction even amid earlier, heavier restrictions. Russia's Energy Minister Nikolay Shulginov, meanwhile, has stated that the gas link may be completed this year, encouraging news for the international energy sector.

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