Nord Stream 2 prepares first line for natural gas, but start-up is still in sight

The operator of the Nord Stream 2 (NS2) gas pipeline said pre-commissioning work started on the first line of the system on Friday, but when exactly the service will start and the impact it could have on the markets European energy companies remain uncertain.

Nord Stream 2 AG said on Thursday that the first section of the twin gas pipeline that connects Russia to Germany across the Baltic Sea was completed earlier this month when the pipe laying was completed. The above-water connection was completed on Thursday, the company said, paving the way for preparations to fill the first line with natural gas.

The laying of offshore pipelines for the second line is underway, the company said. Russian President Vladimir Putin said this month at an economic forum in St. Petersburg that the second line should be completed by August. There are about 60 miles to go on this stage. He also said Gazprom PJSC will start filling in the first line once Germany approves it.

Russian officials said earlier this year that the 764-mile, 5.3 Bcf / d system could start shipping gas by the end of this summer. NS2 would provide additional European imports at a time when storage stocks remain low after a brutally cold winter. The pipeline would also provide additional competition for liquefied natural gas (LNG) exports to Europe.

But there are different estimates of when the service will start.

The NS2 has been a source of international friction, with countries like the United States claiming the line will increase the European Union (EU) ‘s energy dependence on Russia. The United States imposed sanctions on the project in 2019 and 2020, but the Biden administration recently lifted them as it seeks to build a stronger relationship with Europe, where NS2 has supporters.

[Moving Market: Tune into this episode of NGI’s Hub & Flow podcast where LNG Insight Editor Jamison Cocklin and Abaxx Exchange Chief Commercial Officer Joe Raia discuss the market’s search for improved price transparency as the market evolves.]

When the pipeline is finished, that doesn’t mean the service will begin, said Anna Mikulska, a non-resident energy studies fellow at the Baker Institute at Rice University. She told NGI that obstacles remain for the project.

An EU rule requiring the separation of ownership of transport and natural gas was extended in 2019 for gas pipelines to and from countries outside the bloc, impacting Gazprom’s vertically integrated structure. Under the regulations, Mikulska said, the company may have to settle for partial capacity on the system or forgo operation and ownership of the pipeline.

She added that the threat of additional penalties or pipeline insurance issues could also impact the timing of the service, as some companies might not want to take the political risks associated with the system.

Given low storage stocks, soaring carbon prices and competition from Asia, European gas prices have skyrocketed this spring. If the first part of NS2 goes live in the third quarter, there is a risk of falling European gas prices, said James Waddell of Energy Aspects, head of European gas, but said the forecasts were “exaggerated. “.

European prices are likely to rise regardless of NS2’s start-up, he said. Fuel costs will rise due to the need to recharge storage and the price of natural gas from the electric battery to do so. The biggest risk to prices, Waddell told NGI, is a quick start to the second row before the end of the year.

“We warn that there are always risks as to the amount of gas you can deliver via the second line due to a number of regulatory and upstream constraints,” he added.

Carlos Torres-Diaz of Rystad Energy, head of gas and electricity markets, said that if the first part of NS2 goes live by August or September, it could help balance the European market. But he added that low storage stocks, which stood at 41% of capacity on Friday, remain the key factor.

“Since the underground storages have to be replenished before the withdrawal season, the additional Russian volumes could arrive a little too late,” Torres-Diaz told NGI. “European suppliers cannot risk waiting for these volumes to reach the market and will therefore continue to source LNG throughout the summer, supporting prices.

This is a positive point for US LNG exports, which are seen as competing with other suppliers such as Russia for European market share. The LNG arbitrage spread between the US and Europe is very healthy at over $ 6 / MMBtu until the end of the year, according to NGI’s calculations. The continent accounted for 36% of all US LNG cargo until mid-May, just behind Asia where a price premium this year has attracted additional cash cargoes. Asia accounted for around 38% of US cargoes.