Nord Stream 2 gas pipeline construction continues; EU reaches preliminary agreement on gas directive changes

The first Nord Stream natural gas pipeline was completed in 2012. The Nord Stream 2 pipeline largely parallels the existing one and runs from Russia to Greifswald on the German coast. Like its older counterpart, the Nord Stream 2 will have an annual transmission capacity of 55 billion m³. Over 800 kilometres of the 1,220-km pipeline have now been laid beneath the Baltic sea bottom. The pipeline is scheduled for commissioning at the end of this year.

The Nord Stream 2 pipeline venture was initially owned by Russia’s Gazprom and five European energy companies. Due particularly to opposition from the Polish competition authority, the European companies pulled out of the venture as stakeholders in August 2016, although they continued as financial investors of the project. Uniper, Wintershall, Shell, OMV and Engie each have committed to provide 10 % of the project’s estimated 9.5-billion-euro funding.

While the participating energy companies seek an economically efficient import route that runs directly to their core markets, the pipeline has met opposition for environmental reasons (increased import capacity may increase hydrocarbon use) and geopolitical reasons (increased pipeline capacity may increase dependence on Russia). The new pipeline is also likely to substantially reduce the flow of gas to Europe coming through Ukraine, and thereby reduce Ukraine’s income from transit fees.

The United States has several times threatened to impose sanctions on the company building Nord Stream 2 to block construction. EU countries have sought to agree on how regulations of EU gas markets should be applied to new gas pipelines from outside the EU area. A provisional political agreement on new rules was reached on February 12. The agreement calls for amending the EU gas directive so that its key elements (tariff regulation, transparency, third-party access and unbundling ownership of production and distribution functions) affect also Nord Stream 2. Once the European Parliament and Council approve the proposal, member countries need to integrate the rules into their own legislative frameworks. National authorities are responsible for implementing the directive. It is still too early to judge the practical implications of the new rules on future pipeline use.

In the event both Nord Stream pipelines can be operated at full capacity in the next decade, over half of the gas imported from Russia to EU countries could flow via the undersea Baltic route. Slightly over 40 % of the gas imported by EU countries comes from Russia, with another third from Norway and about 10 % from Algeria. LNG accounted for 14 % of EU gas imports from outside the EU in 2017.