Russia Goes For Global Gas Dominance

Authored by Tsvetana Paraskova via OilPrice.com,

Despite the newly announced U.S. sanctions against the Nord Stream 2 project, Russia says it will build and launch next year the natural gas pipeline that has divided Europe for half a decade.   

With Nord Stream 2, Russia’s President Vladimir Putin will have several major natural gas projects completed in the past few years, Bloomberg Opinion’s Europe columnist Leonid Bershidsky writes.

These projects will complete Putin’s plan to have Moscow not only continue holding a large share of gas supplies to Europe, but branch out Russian gas exports to the fastest growing gas import market, China, and seize a growing share of the global liquefied natural gas (LNG) market.

Nord Stream 2 is the latest project in Putin’s plan for energy and geopolitical dominance in the world. Russia already holds a third of Europe’s gas imports. Nord Stream 2, when completed—because Russia believes it will be completed next year despite the sanctions—is set to further solidify Moscow’s reach into the north European market bypassing Ukraine.

Before Nord Stream 2, Russia will have launched TurkStream, through which Russia’s gas giant Gazprom will carry pipeline gas to Turkey and south and southeastern Europe—a region already heavily dependent on Russian gas supplies. Putin and Turkish President Recep Tayyip Erdogan are set to officially launch the TurkStream gas pipeline on January 8.

Early in December, Gazprom—which also leads the Nord Stream 2 project to carry Russian gas to Germany—launched the huge Power of Siberia pipeline project to deliver gas to China, whose gas consumption and imports are only set to increase over the coming years and decades.

While Gazprom is launching new pipelines east and west, Russia’s largest private gas producer Novatek is boosting its presence on the global LNG market. Novatek, which already exports LNG from the Yamal LNG plant, gave in September the go-ahead to its second large LNG project, Arctic LNG 2 on the Gydan Peninsula.

This year, Russia has supplied large volumes of LNG to Europe, apart from its pipeline supplies which account for a third of the European Union’s (EU) gas imports.

In Q2 2019, thanks to the LNG supply glut and converging prices, the EU’s LNG imports jumped by 102 percent on the year, with Russia accounting for 19 percent of LNG imports, second only to Qatar with 30 percent, and ahead of the U.S. with 12 percent, the European Commission’s Quarterly Report on European Gas Markets shows.

Between January and November, LNG imports into Europe including Turkey hit a record high, beating the previous record from 2011, the EIA said in its latest natural gas update. The U.S., Russia, and Qatar boosted their LNG supplies to Europe this year, and the U.S. beat Russia in volumes supplied to Europe in the latter part of the year, EIA data shows.

While Russia and the U.S. compete for gas market share in Europe, the U.S. hit Russia’s Nord Stream 2 project with sanctions this month, delaying the completion of the project with at least several months.

Following the announcement of the sanctions, Switzerland-based offshore pipelay and subsea construction company Allseas immediately suspended Nord Stream 2 pipelay activities.

“The United States will impose sanctions unless related parties immediately demonstrate good faith efforts to wind-down. Related parties need to finish wind-down within 30 days,” the State Department said on Friday, noting that the United States’ intention is to stop construction of Nord Stream 2.

Putin and German Chancellor Angela Merkel confirmed in a telephone conversation their commitment to further support the Nord Stream 2 project, the Kremlin said on Sunday. The U.S. sanctions on the project have divided Europe, with Germany criticizing the U.S. interference in Europe’s energy policies and projects.

Before the sanctions were imposed, the Nord Stream 2 pipeline was expected to come on stream in the middle of 2020, Russia’s Deputy Prime Minister Dmitry Kozak said in November, adding that construction of the project was 80 percent complete.  

Russia’s Energy Minister Alexander Novak said on Friday that Gazprom would launch Nord Stream 2 by the end of 2020. One of Gazprom’s options to continue pipelaying while under sanctions is using a vessel that is currently in the Far East, Novak said, noting that retrofitting the ship could take “some time.”

Despite the now inevitable delay of Nord Stream 2, Russia looks beyond the next few months as Putin has laid the foundations of global gas export dominance.