What is the effect of the Russian-Ukrainian crisis on the Nord Stream 2 project?

Germany has interrupted the process of customs clearance of the Russian natural gas supply pipeline, the construction of which cost nearly 11 billion dollars.

Germany has interrupted the process of customs clearance of the Russian natural gas supply pipeline, the construction of which cost nearly 11 billion dollars.

The story so far: The continuation of the Russian military operation in Ukraine has raised new concerns about the future of the Nord Stream 2 gas pipeline and a possible shortage of natural gas in Europe.

Before Russia invaded Ukraine, US President Joe Biden promised that the Nord Stream 2 gas pipeline would be blocked if Vladimir Putin invaded Ukraine. In a statement, Mr Biden said Mr Putin had given the world an “overwhelming incentive” to move away from Russian natural gas and explore other forms of energy. During a press briefing on February 23, 2022, White House press secretary Jen Psaki said the Nord Stream 2 was “currently dead at the bottom of the sea”.

How has the Russian-Ukrainian crisis affected the Nord Stream 2 project?

After Mr. Putin recognized the independence of Ukraine’s separatist-ruled regions of Donetsk and Lugansk on February 21, 2022, German Chancellor Olaf Scholz halted certification of Nord Stream 2.

Germany has a GDP of $3.85 trillion, making it the largest economy in Europe. 65% of Germany’s natural gas needs are met by Russia, and Scholz’s decision is likely to impact Russia’s natural gas supply, and subsequently the economy German.

Russia currently supplies about 35% of Europe’s natural gas needs. With Russia’s energy dependence, the fear of a repeat of the 2006 energy crisis in Europe is also looming.

In 2006, Russia cut off gas supplies to Ukraine after a dispute, sparking an energy crisis in Europe in the middle of winter. Russia and Ukraine were embroiled in a dispute over gas prices and the Kremlin also accused Ukraine of stealing some of the supply destined for other European countries. At the time, the majority of Russia’s gas supply to European countries passed through Ukraine.

Even before Russia invaded Ukraine, the country had already cut its natural gas supply to Europe at the end of 2021, but was still meeting its contractual obligations. Reduced supply had caused natural gas prices to spike due to low storage levels on the continent and rising coal prices. The cost of natural gas has increased almost fivefold, from 19 euros per megawatt hour to 95 euros per megawatt hour. Over the years, European countries have struggled to switch from coal to natural gas for power generation as part of their transition to cleaner energy. It has also led to a decrease in the continent’s natural gas reserves. Many countries have also closed production fields for environmental reasons.

Experts believe Russia cut its natural gas supply to Europe last year to take advantage of faster approval for the Nord Stream 2 project. Once the pipeline is operational, Russia will be able to bypass Poland and Ukraine while routing its supply to Europe, thus fulfilling two objectives: to make Europe more dependent on Russia for natural gas and to harm Poland and Ukraine economically.

After Russia’s announcement to recognize the independence of separatist-ruled regions, Ukrainian President Volodymyr Zelensky demanded sanctions against Russia, including stopping the Nord Stream 2 project.

In a meeting with Scholz that took place shortly before Russia invaded Ukraine, Mr. Zelensky called Nord Stream 2 a geopolitical weapon. Ukraine has opposed the Nord Stream 2 gas pipeline because it will lose around $2 billion in transit fees once it is operational.

What is Nord Stream?

The Nord Stream pipeline is owned by Gazprom, a Russian state energy company. Nord Stream 1 runs from Vyborg to Leningrad to Lubmin near Greifswald, Germany and was completed in 2011. Nord Stream 2, a 1,222 km long pipeline under the Baltic Sea, runs from Ust-Luga to Leningrad to Lubmin and its construction was completed in September 2021. It has the capacity to process 55 billion cubic meters (bcm) of gas per year once operational.

Together, the two pipelines can transport a combined total of 110 billion cubic meters of gas per year to Europe for at least 50 years. The Nord Stream crosses the Exclusive Economic Zones (EEZ) of countries such as Russia, Finland, Sweden, Denmark and Germany, as well as the territorial waters of Russia, Denmark and Germany. In Germany, it connects to the OPAL — Baltic Sea Pipeline — and the North European Pipeline.

Nord Steam’s main source of gas is the Bovanenkovo ​​oil and gas condensate field in Western Siberia.

The United States and other European countries have also criticized the pipeline in the past, saying it would increase Europe’s dependence on Russia to meet its energy needs.

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