EU energy updates

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Russia is on the brink of being able to ship more gas to Europe via the Nord Stream 2 pipeline after Gazprom said it had finished building the contentious project.

The $11bn pipeline across the Baltic Sea will allow Gazprom to send 55bn cubic metres of gas to Europe per year, bypassing Ukraine. The plan has alarmed Kyiv, which could lose out on billions of dollars in gas transit fees, while US sanctions have delayed construction.

Opponents have also raised concerns that the pipeline would make Europe more reliant on Russian gas, which already accounts for more than a third of its demand. 

Gazprom said in a statement that “the construction of the Nord Stream 2 pipeline has been fully completed”. The pipeline still has to go through technical testing and certification, which normally takes a couple of months, according to industry experts.

Gazprom declined to comment on the expected timeframes for the first gas to flow. Last week, chief executive Alexei Miller said Gazprom could send gas via the pipeline “by the end of the year and during this heating season”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters that “everyone” had a shared interest in certifying the pipeline “as soon as possible”. Peskov added the Kremlin did not know when supplies would begin once “remaining formalities” were completed.

Together with neighbouring Poland, Ukraine has pledged to challenge the NS2 pipeline’s adherence to EU energy market rules, which require separation of production, transit and supply. Such a challenge could force Gazprom to “unbundle” the pipeline, losing its controlling stake in the project.

“We hope . . . as we provide necessary arguments in Berlin and Brussels, that NS2 AG should not be certified as operator of the NS2 [pipeline] under current circumstances,” Yuriy Vitrenko, chief executive of Ukraine’s state gas company Naftogaz, told the Financial Times.

The US has staunchly opposed NS2 but reached a truce last July with Germany that obliges Berlin to impose sanctions upon Russia should it use the pipeline as a weapon against Ukraine or other allies.

Kyiv says that agreement, which followed the Biden administration’s lifting of sanctions on Nord Stream 2 AG, the Gazprom-owned pipeline operator, provides no concrete guarantees on security or future Russian gas flows via Ukraine.

German chancellor Angela Merkel said on her recent trip to Kyiv, after visiting Moscow, that Germany would not allow Russia to weaponise the gas corridor.

Mitch Jennings, a Moscow-based analyst at Sova Capital, said: “It was our understanding that US sanctions in the [National Defense Authorization Act] were blocking the pipeline from certification, which we thought would create issues with its launch.”

However, this may not be an issue as Gazprom has been guiding for up to 5.6bn cubic metres in exports via Nord Stream 2 by the end of this year, as the EU is sometimes willing to let pipelines work if negotiations are ongoing, Jennings said.

Russia has faced criticism lately for sending less gas to mainland Europe than in previous years, with storage levels lower than normal heading into the winter months. 

Natural gas prices in the UK and continental Europe have soared in recent weeks to record levels because of tight supplies in the global market, with executives warning that there could even be the need for some energy-intensive industries to restrict production if there is a very cold northern hemisphere winter.

Gazprom has said it has met all of its contracted volumes but there is a fierce debate in the gas industry over its strategy this year, particularly towards its traditional customers. The company has increased export volumes to other countries through Turkey in 2021 and has become a bigger supplier to Asia in recent years.

Additional reporting by Max Seddon in Moscow and Guy Chazan in Berlin