The World’s Most Controversial Pipeline Project Enters Its Final Phase

Authored by Viktor Katuna via OilPrice.com,

It took more than a year to break the Nord Stream 2 stalemate and now – amidst the world expecting full-scale coronavirus vaccination, amidst the United States expecting the inauguration of President-elect Biden and Europe preoccupied with the future of the EU-UK cooperation rather than energy issues – Gazprom has restarted pipelaying operations on the Nord Stream 2 pipeline. The Fortuna pipelaying vessel has finished working on the NS2 section in Germany’s exclusive economic zone (EEZ) and now it is only the Danish EEZ that remains to be laid. Coincidence or by some unfathomable design, it is exactly now that the next round of US sanctions goes into effect, indicating that the pipeline’s endgame will take place in the upcoming 3-4 months.  Gazprom took quite some time to fully prepare itself for the pipelaying, almost a year has passed since Allseas ceased all operations out of concern for potential US retaliation and the Fortuna vessel started pipelaying in Germany’s EEZ. Such a massive timespan has left many analysts wondering how exactly would the Russian side opt to finish the pipeline and most of them, betting on Akademik Cherskiy, had been caught wrong. Fortuna started its operations off the Adlergrund shoal on December 11 and it took the vessel 17 days to complete both parallel strings (the 55 bcm per year throughput capacity is split between two strings the capacity of both which stands at 27.5 cm per year) of the German section, implying that the average pipelaying speed was much lower than the 1-1.5km per day initially assumed by industry watchers. 

There have been very few offshore pipeline projects, if any, that had such a plethora of pipelaying vessel and supporting tugs appearing and disappearing, involved directly in pipelaying or acting merely as smoke and mirrors. Ever since Allseas stopped its pipelaying works in December 2019, the Akademik Cherskiy vessel was the prime candidate to carry on where the Swiss company has stalled – for this she circumnavigated half the planet, moving from Nakhodka in Russia’s Far East around the Cape of Good Hope to the Baltic Sea. Akademik Cherskiy, however, was inactive throughout pipelaying operations in Germany’s EEZ. Moreover, Cherskiy sits idle quite a distance from Germany, off Russia’s Kaliningrad region, accompanied by a couple of anchor-handling tugs, Artemis Offshore and Errie. 

Confounding the Gazprom-owned pipeline’s opponents even further, the ownership structure of the Fortuna vessel has become even more untraceable as she was sold resold again in mid-December, this time to a completely unknown company called KVT-RUS. Crudely put, all the pertinent vessels that are active in pipelaying operations on Nord Stream-2 or merely have been linked to its construction have been sold away from Gazprom amidst the looming threat of US sanctions. Speaking of supply vessels, there are at least half a dozen others scattered across the Baltic Sea. In and around Kaliningrad at least 3 vessels have been biding their time – the vessels Ostap Sheremeta, Yasniy and Vengeri were all linked to Nord Stream-2 at some point. Another anchor handling tug vessel, Ivan Sidorenko, has been moving somewhere in the Baltic Sea with its transponders switched off in mid-December, only to resurface in Mukran and then in Kaliningrad by the end of the same month. 

Russian media reports state that Fortuna would start pipe-laying in Danish territorial waters from January 15, 2021, providing no specific date for the completion of works. There remain some 120km to be laid in Danish territorial waters, however, laying the pipelines in the middle of winter has always been the least preferable scenario for Gazprom given the difficult weather conditions that could slow down Fortuna’s assumed 1.5 km per day nominal speed. Therefore, it would be unreasonable to expect the completion of pipelaying works before April-May 2021. Generally speaking, Gazprom has two years left to conclude the construction of Nord Stream 2 before its transit agreement with Ukraine’s Naftogaz runs out and confronts the two companies (and two nations) once again in another round of a Russo-Ukrainian gas standoff.

An immutable aspect of Nord Stream-2 is the United States’ ever-tightening sanctions regime. Despite President Trump’s veto of the National Defense Authorization Act of which the Nord Stream-relevant sanctions formed part, the US Congress overrode his decision, thus activating a new round of targeted sanctions from December 29 onwards. From now on, any entity, be it Russian or European, that helps build Nord Stream 2, provides retrofitting and upgrading services to vessels participating in the project, or provides insurance and/or underwriting might be subject to sanctions. Though the new sanctions package provides for a 30-day wind-down period, most European companies providing a technical assessment of Nord Stream-2 will cease any sort of cooperation with the pipe-laying vessels and Gazprom as the coordinator of its construction. 

The European Union has so far refrained from robust political steps vis-à-vis the US Administration against what it perceives to be meddling in its internal affairs, however, the cohesion of the European block seems to have solidified over the course of 2020 and will fortify even more with Britain’s departure. Lack of progress on the Ukrainian dossier and Alexei Navalny’s poisoning notwithstanding, virtually the entirety of Germany’s financial leaders continue to support the project, stating that canceling Nord Stream-2 would not only hurt European customers and consumers but would also damage the financial standing of the top oil and gas majors involved in the project. Against such a geopolitical landscape, the US should find an elegant way to avoid acknowledging the failure of its multi-step sanctions-tightening.