A new natural gas pipeline being built under the Baltic Sea from Russia directly to the German coast is shaking up geopolitics. Nord Stream 2, as it’s called, worries the bypassed countries in Eastern Europe, who fear losing transit fees, and is adding to friction with the U.S., which argues the link would give the Kremlin new leverage over Germany and other NATO allies. As the project nears completion, those trans-Atlantic tensions are building, with Donald Trump threatening to reduce the number of American troops in Germany partly because of the gas link.

1. What is Nord Stream 2?

It’s a planned 1,230-kilometer (764-mile) pipeline that will carry natural gas from Russian fields to the European network in northern Germany. 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 ($10.6 billion) cost. Initially expected to come online by the end of 2019, the link has faced delays due to U.S. sanctions that forced Swiss contractor Allseas Group SA to withdraw its pipelaying vessels. Denmark, in whose waters the construction work is to be done, has been reviewing Nord Stream 2’s request to deploy new vessels.

2. Why is it important?

Before the first Nord Stream opened, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine, a nation with which it has had tense (or worse) relations since the Soviet Union collapsed. That left Gazprom exposed to disruptions. A pricing dispute prompted Russian leaders to halt gas flows through Ukraine for 13 days in 2009. Since then, relations between the two countries have worsened, culminating in the Ukrainian popular revolt that kicked out the country’s pro-Russian president and led to Russia seizing the Crimean Peninsula. The Nord Stream projects are just one part of Gazprom’s decades-long effort 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.

3. Why is the U.S. involved?

Trump and members of the U.S. Congress worry that Nord Stream 2 will make Europe overly dependent on Russia. Trump has said that Germany in particular will become “a captive to Russia.” And it’s clear that the U.S. is keen to increase its own sales to Europe of what it calls “freedom gas.” In June, a bipartisan group of senators proposed expanding the current sanctions against Nord Stream 2 to include insurers, certifiers, IT companies working on the project. Senator Ted Cruz, one of the lead sponsors of the legislation, said the pipeline poses “a critical threat to America’s national security and must not be completed.” The Economy and Energy Committee of Germany’s lower house said the new sanctions clash with international law, while Chancellor Angela Merkel’s administration was said to be considering pressing for coordinated European Union action should the U.S. tighten the sanctions.

4. What do the sanctions mean for the project?

Works at the Nord Stream 2 offshore site halted in late 2019 and neither the pipeline operator, Nord Stream 2 AG, nor its parent company Gazprom PJSC have announced a new construction plan. However, earlier this year Russia sent a pipelaying vessel, Akademik Cherskiy, on a three-month journey from the east Pacific coast to Germany’s Baltic port of Mukran where Nord Stream 2 stores its pipes. The vessel would be capable of building the final section of the gas link if Denmark grants permission. Pressure testing, cleaning, and filling the link with buffer gas may take six to seven weeks after the link construction is completed, based on the schedule for building the original Nord Stream. In June, Gazprom reiterated its plan to start gas shipments via Nord Stream 2 in late 2020 or early 2021. However, tighter U.S. sanctions could put that timetable in doubt.

5. 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 are concerned that they’ll lose at least part of their revenue after the launch of the link. Those concerns have been partially alleviated after Gazprom reached a deal to continue gas transits via Ukraine through at least 2024. While Germany backs the project, the nation’s regulator said the pipeline cannot be exempt from EU competition requirements to separate pipeline ownership from the gas supplier.

6. Is Europe really captive to Russian gas?

The European gas market has become more competitive as liquefied natural gas vies to replace declining local production from the North Sea and the Netherlands. Gazprom estimates that in 2019 its share of the European market was 35.5% compared with around 37% in 2018. The company’s domestic rival, Novatek PJSC, is also expanding its LNG sales in Europe. But not all countries are equally dependent on Russian imports. Gazprom remains the traditional key supplier for Finland, Latvia, Belarus and the Balkan countries, but western Europe gets gas from a wider range of sources, including Norway, Qatar, African nations and Trinidad. More nations, from Germany to Croatia, are seeking to build LNG import terminals to accept shipments from around the world.

7. Will the U.S. sell more gas to Europe?

Before the Covid-19 pandemic slashed global fuel demand and sent prices to record lows, the U.S. was a significant supplier of tanker-borne gas to northwest Europe. But U.S. gas must be chilled into a liquid form and shipped across the Atlantic at a great cost. Russia is transporting its gas mostly through the world’s largest network of pipelines that have been in place for decades. This year transatlantic LNG shipments have become even less economic. Yet U.S. suppliers are focused on long-term prospects, and have had some success securing deals with Poland. More broadly, they have to hope for a resolution of the trade war between the U.S. and China, whose imports of U.S. gas have slumped since the government in Beijing applied tariffs in retaliation to levies imposed by the White House. The International Energy Agency expects the U.S. to become the world’s biggest LNG seller in 2025.

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