What we are going to see in Europe will not be total aggression towards Russian gas and Russian pipelines, but more decisions based on the market fundamentals of supply, demand, and price. US and Qatar LNG is quite expensive compared to Russian gas. So, these will be the factors that determine the success of the Nord Stream 2 project, rather than efforts of national regulators of the type that we have seen in Denmark.
The Danish law, which can ban the Nord Stream 2 gas pipeline from passing through the country’s territorial waters is not a totally new development for the Russian-European consortium. In recent times, we have already seen efforts by national regulatory authorities to stop this project or to question its legal validity. Close to a year ago, the Polish regulator attempted taking action against the European companies involved in Nord Stream and saying that this project is not supportive of development of competition in the Polish gas market. Now we have seen another episode coming from Denmark, where the national legal authority, acting together with the government, is taking steps to cause difficulties for this project. But Russia is not going to abandon it – on the contrary, I can see further negotiations between Gazprom and some of its European partners on how to deal with this obstacle on the one hand, and also discussions taking place within Gazprom and the Russian government as to what measures they can take to deal with this latest hurdle.
The Danish move cannot terminate the project, but can lead to delays, to rerouting the pipe around the country’s waters and also to additional expenses. To be sure, this is a problem for the project, but I would not refer to it as a force majeure situation, such as the type that we saw with South Stream a few years ago.
We have to look at this from a broader angle, and this is the discussion about markets vs. regulators. One has to look at the forecast of gas supply and demand, as well as climate discussion. The successful realization of Nord Stream 2 will depend on the future outlook for the demand on Russian gas in Europe and on imported gas in general. This will overcome the regulatory barriers. If the market decides that it needs the additional gas – and the Russian gas is relatively cheap and abundant – and if it fits in the European energy and climate objectives, then we’ll see this project continue.
With a major push for renewable energy, there is a big debate about the future of gas in Europe at the moment. But, in principle, the rhetoric of top European Commission officials with regard to Nord Stream 2 has changed over the past year, becoming a little more favourable. Also, one has to take into account the conclusion of the so-called Gazprom case by the European Commission (DG Competition): we are moving towards a resolution that should be in principle acceptable for both Brussels and Moscow. What we are going to see in Europe will not be total aggression towards Russian gas and Russian pipelines, but more decisions based on the market fundamentals of supply, demand, and price. US and Qatar LNG is quite expensive compared to Russian gas. So, these will be the factors that determine the success of this project rather than efforts of national regulators of the type that we have seen in Denmark.
