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A new natural gas pipeline into Europe from Russia is shaking up geopolitics. Nord Stream 2, as it’s called, worries leaders in Eastern Europe, has put German Chancellor Angela Merkel on the hot seat and has stirred the ire of U.S. President Donald Trump. Now the pipeline could become the target of new U.S. sanctions.

1. What is Nord Stream 2?

It’s a planned 1,230-kilometer (764-mile) undersea pipeline that will carry natural gas from Russian fields to the European network at Germany’s Baltic coast. It will double the capacity of an existing undersea route -- the original Nord Stream -- that opened in 2011. Russia’s Gazprom PJSC owns the project, with Royal Dutch Shell Plc and four other investors including Germany’s Uniper SE and Wintershall AG providing half of the 9.5 billion-euro ($10.7 billion) in cost. As of early June, the link was more than 57% built, Gazprom said.

2. When will it open?

Gazprom has received environmental and construction permits from Germany, Finland and Sweden but has had trouble getting similar approvals from Denmark. (The pipeline would cross the economic zones of those four nations, plus Russia’s.) The Danish Energy Agency this March asked the company to develop options for re-routing the pipeline due to environmental concerns, a request that Nord Stream 2 called “a deliberate attempt to delay the project’s completion.” Gazprom Chief Executive Alexey Miller said in May that Nord Stream 2 could experience an “insignificant” delay beyond its planned opening at the end of 2019, a rare admission from the Russian gas giant, which until recently maintained the link would start operations on schedule.


3. Why does Russia want the pipe?

Before the first Nord Stream, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine, a nation with which it has had tense relations since the Soviet Union collapsed. That left Gazprom exposed to disruptions, such as the pricing dispute with Ukraine that prompted Russian leaders to halt gas flows for 13 days in 2009. Since then, relations between the two countries have worsened, culminating in the Ukrainian popular revolt that kicked out their pro-Russian president and led to Russia seizing the Crimean Peninsula. The Nord Stream projects are just one part of Gazprom’s decades-long efforts to diversify its export options to Europe. Russia expects European gas demand to increase as some nations move away from nuclear and coal power and as their domestic gas production decreases.

4. Why is the U.S. involved?

U.S. President Donald Trump has frequently voiced criticism of Germany’s support for Nord Stream 2. Last July, before a meeting with NATO Secretary General Jens Stoltenberg, Trump said Germany had made itself “captive to Russia” by “getting so much of its energy” from there. A group of 39 U.S. senators said in 2018 that Nord Stream 2 would make American allies “more susceptible to Moscow’s coercion and malign influence.” Trump’s repeated threat of sanctions in June raises the pressure, though how they would be imposed and who would be targeted remains unclear.

5. Is this all about selling more U.S. gas?

No question, the U.S. is keen to increase its European sales of liquefied natural gas, which it dubs “freedom gas.” But prospects are clouded. Gas from the U.S. must be chilled into a liquid form and shipped in tankers across the Atlantic at a great cost. Russia’s supplies mostly arrive in Europe through a network of pipelines that have been in place for decades -- and at a much lower price. Nevertheless, U.S. suppliers have had some recent success securing deals with Poland, which is eager to loosen Russia’s grip over its energy supply. The main problem is that a global gas glut has lowered prices in Europe so much that U.S. LNG is struggling to compete.

6. Do others oppose Nord Stream 2?

Countries that sit between Russia and Germany collect transit fees on the natural gas that flows through their territories. Those nations include Ukraine, Poland and Slovakia. They’re worried both that they will lose revenue and that Nord Stream 2 gives Russia the ability to bypass them completely in times of political friction. Lithuania’s president, Dalia Grybauskaite, said her nation has always viewed Nord Stream 2 “as geopolitical, politically motivated, having no economic justification and also binding hands for some European countries to pursue a free energy policy.”

7. Is Europe really captive to Russian gas?

Gazprom estimates that in 2018 its share of the European gas market grew to just under 37%, from around 34% in 2017, driven by lower production in the region. Not all countries are equally dependent on imports from Russia. Gazprom remains the traditional key supplier for Finland, Latvia, Belarus and the Balkan countries, but western Europe gets its gas from a wider range of sources, including North Africa, Norway and the Netherlands, while southern European states use barely any Russian gas. The European market has become more competitive in recent years as supplies from Qatar and elsewhere vie to replace declining local production from the North Sea.

8. How do Russia and Germany respond?

Trump’s talk of Nord Stream sanctions comes as U.S.-Russian relations are at their lowest point in decades. Vladimir Putin’s spokesman Dmitry Peskov said on June 12 that the sanction threat is “nothing other than blackmail and a form of unfair competition.” He reiterated Russia’s traditional mantra that Nord Stream 2 is a purely commercial project aimed at raising Europe’s energy security. Trump’s relationship with Merkel is also strained. Germany’s Economy Ministry said it opposes extra-territorial sanctions and sees the Russian link as complying with national and European law.

9. Does the U.S. have other options?

U.S. LNG exports are mainly finding a home in Latin America, which is closer, or in Asia, where prices are often higher -- although the ongoing trade war between the U.S. and China may become an obstacle. China’s imports of U.S. gas have slumped since Beijing slapped tariffs on the fuel last year in retaliation to the levies imposed by the White House administration.

To contact the reporters on this story: Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net;Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andy Reinhardt, Rob Verdonck

©2019 Bloomberg L.P.