First line of Nord Stream 2 pipeline filled with gas ready for export – operator 

The first of two lines of Russia’s Nord Stream 2 pipeline has been filled with gas as part of final preparations for the start of deliveries to Europe, the project operator announced on Monday.

“As of October 18, the gas-in procedure for the first string of the Nord Stream 2 pipeline has been completed,” the company said in a press release, adding, “As planned and in line with the system design requirements, the string is filled with some 177 million m3 of so-called technical gas, reaching a pressure of 103 bar in the pipeline.”

According to the operator, “This pressure is sufficient to start gas transportation.”

It said that “pre-commissioning steps for the second string are ongoing. Nord Stream 2 will announce further technical steps in due time.”

The news comes as the project is still awaiting EU clearance to start gas shipments to Europe. Nord Stream 2 consists of two pipelines designed to carry around 55 billion cubic meters of gas per year from the Siberian gas fields in Russia across the Baltic Sea to Germany. The project has hit numerous roadblocks, including opposition from some Eastern European countries and US sanctions.

Russia will set new record for natural gas output in 2021 – Novak

Russia is on course to set a new record for natural gas production in 2021, but plans to focus on domestic supplies during the upcoming winter, Deputy Prime Minister Alexander Novak said at the Russian Energy Week forum.

“As for production capacities, this year we will reach record volumes of gas production,” Novak stated. According to the minister, however, authorities will put domestic demand first and ensure that Russia’s internal gas market is well-stocked for the winter period.

This means producers will focus on filling up domestic underground gas storage facilities (UGS) with the process expected to be completed around the end of October, “depending on weather,” as Novak put it, before supplying additional volumes to Europe. At the same time, the minister noted that Russia is fully complying with its existing contract obligations for gas supplies to the EU and is ready to consider increasing deliveries, but no official applications for this have been submitted.

“Officially, no one has approached the Ministry of Energy or the government [regarding extra supplies]. Russia and in particular Gazprom, as the only exporter, fulfills its obligations under all contracts. If anyone needs it, Gazprom will consider supply options based on its production capacity, which it has,” the minister stated. The EU’s High Representative for Foreign Affairs and Security Policy Josep Borrell said this week that Europe needs Russian gas and may need more gas than had previously been agreed.

Gas prices in Europe have skyrocketed in recent weeks. The cost of November futures on the TTF hub in the Netherlands rose to $1,229.4 per thousand cubic meters on Thursday, or $119 per megawatt-hour in household terms. The overall price increase since the beginning of the day was about 7.6%.

According to Novak, Russia does not welcome high gas prices, as this pushes consumers toward alternative energy sources.

“There is inter-fuel competition, when prices for one type of energy increase, others are cheaper, the demand for them becomes greater… Therefore, we also see such risks, and the president said today that we are not interested in high prices. They must be competitive,” the minister said. 

Novak also announced that Russia’s new Nord Stream 2 gas pipeline will be ready for gas deliveries in a matter of days.

“The construction of Nord Stream 2 has been completed. Commissioning and filling of the pipeline with the required technological amount of gas is underway. And I believe that it will be ready for operation in the coming days,” Novak said, adding that everything now depends on the European regulator.

Commercial gas supplies via Nord Stream 2 may begin immediately after obtaining permission for deliveries, Novak stressed, adding that supplies also depend on applications from European consumers. On October 4, the Danish Energy Agency announced that the pipeline’s European operator Nord Stream 2 AG had fulfilled all the conditions for putting Nord Stream 2 into operation.

Nord Stream 2 is being finished

Nord Stream 2 may have become one of the most geopolitically charged energy projects in history, but its completion was inevitable since before construction even begun.

Europe is quickly becoming one of the most important export destinations for gas exporters. Production is decreasing quickly due to political and technical developments. The next few decades are promising for exporters. Nord Stream 2 is arguably one of the most contentious projects currently under development. Denmark recently granted the last necessary permit to start construction activities in its EEZ and analysts now agree that the project’s completion is only a matter of time. In reality, the pipeline’s future was decided long before construction even started due to external factors such as Poland’s decision to diversify away from Russian gas and Western Europe’s determination to turn away from nuclear and fossil fuel production.

Safe but expensive, risky but cheap

The availability and transportation of natural gas are determined by the relative distance between consumers and the production area. A general rule of thumb is that for a distance smaller than 4,000 km or 2,500 miles pipelines are more economic while LNG is more economic for distances larger than that. Political factors, however, trump financial and technical logic. The safety of supply is valued more by countries such as Poland who opt for more expensive alternatives such as the Baltic pipeline.

Historically, the European energy market is dominated by Russia due to its proximity and massive energy reserves. Siberian gas is the most obvious choice from an economic point of view. Politics, however, are what currently dominates the natural gas industry. With that in mind, the persistent support for Nord Stream 2, NS2, by Western European countries and companies, most notably Germany, may appear strange. But a more in-depth look at energy politics in the region and domestic developments, in general, provide somewhat of an answer.

European production is decreasing dramatically, primarily due to the depletion of old gas fields. Also, political motives hamper production such as in the Netherlands where tremors, allegedly due to gas extraction, have reduced political support for the industry. Europe’s biggest single gas deposit, the Groningen field in the Netherlands, will cease operations in 2022. The closure of this gas giant was another reason to support the construction of NS2.

Poland’s push for diversification

Poland is one of the staunchest opponents of NS2. The Eastern European country argues that Moscow is trying to divide Europe by circumventing traditional transit countries in the east and increasing dependency of the wealthier west, primarily Germany. Warsaw though has financial motives to oppose the project because Gazprom is aiming to export its gas directly to Germany instead of through what it considers more “unreliable” countries such as Ukraine and Poland. This measure will cost Eastern Europe billions in lost transit fees every year.

Poland is diversifying suppliers by constructing a subsea pipeline from Norway through the Baltic sea. Denmark recently granted a permit to construct the infrastructure in its EEZ. The pipeline is planned to come online before 2022 when Poland’s import contract with Gazprom ends.  

The import of Norwegian gas will have unintended consequences for other countries’ energy security. The Baltic pipeline is designed to export 10 bcm of natural gas annually. Norway produced 121.7 bcm in 2018, down from 124.2 bcm in 2017. Although production is expected to increase slightly, the pipeline will reduce the availability of natural gas to traditional customers in Western Europe.

Especially Germany, which intends to shut down its nuclear and coal power plants by 2022 and 2038 respectively, requires a steady supply of cheap natural gas to fill the gap and supplement intermittent renewables. Although there is sufficient LNG import capacity available across Europe, cheap piped gas remains the most sensible economic choice for businesses. 

Not so gloomy after all

The discussion concerning NS2 is unavoidably connected to Ukraine because the pipeline's necessity was born due to Moscow and Kiev's conflict over pricing and supply. Ukraine earns approximately €3 billion each year from the transit of Russian gas. Also, Kiev argues that its bargaining position with Gazprom for the extension of long-term gas contracts will be weakened if it loses its strategic transit function.

Despite Moscow’s policy to circumvent Ukraine’s gas infrastructure, the country will retain its importance for European energy security. Kiev will remain important after NS2 begins transporting crude however, with the country having the same export capacity as NS2 and Turstream combined. The country exported 86.8 bcm of gas in 2017 while NS2 and Turkstream have capacities of 55 bcm and 31.5 bcm of respectively.

Almost 150 bcm of natural gas is required to fill Europe’s demand gap until 2025 (see figure 1) and Russia is the only producer with the necessary capacity to become a swing producer. Ukraine’s infrastructure remains vital for Moscow’s strategy to increase exports to the continent and strengthen its position as a strategic and vital energy supplier. The construction of NS2 may have been a blow for Kiev, but the European market is poised to change significantly over the next couple of years and Ukraine still holds plenty of power in this game.

Reference:

https://www.rt.com/business/473294-nord-stream-2-pipeline/