Nord Stream 2: The Russian oil pipeline 'salami slicing' through NATO

30 May 2019, 09:29 | Updated: 31 May 2019, 04:38

Huddled around a skidoo, the group of locals selling frozen fish to Gazprom employees in northern Russia makes for a forlorn picture.

What were once pastures for their reindeer are now a criss-cross of pipes and the paraphernalia of big energy.

Gas production and transportation firm Gazprom has built reindeer crossings covered with a special geotextile fabric, so that the herders' sledges can pass through.

It is small consolation for the loss of your ancestral homelands on the Yamal peninsula, 400km north of the Arctic Circle.

It is winter here for three quarters of the year. It is sparsely populated - average density is just one person per nine square kilometres.

What there is a lot of, deep beneath the permafrost, is natural gas.

The Bovanenkovo gas field alone, the largest of several on the Yamal peninsula, has reserves of 4.9 trillion cubic metres of natural gas.

That's more than the whole of Europe, Norway and the North Sea combined. And Gazprom has just made another windfall discovery of two more gas fields just off the Yamal shelf.

Bovanenkovo is also the source of gas for one of the most politically heated infrastructure projects of all time.

Nord Stream 2 is the £9.5bn off-shore pipeline which will bring Russian gas through the Baltic Sea, directly to Germany.

It is due for completion by the end of this year, exactly when Gazprom's supply and transit deal with Ukraine comes up for renewal. Gazprom CEO Alexey Miller admitted earlier this month there could be minor delays.

The US is mulling sanctions on companies involved with Nord Stream 2. Denmark is prevaricating about allowing the pipeline to pass through its waters.

Eastern European transit countries fear it is a way of bypassing their pipelines and strengthening Russia's hand in contract negotiations. The EU is looking to regulate it with a new gas directive, called Lex Nord Stream.

'Minor delays' could be putting a rosy spin on it.

Donald Trump has called it a "horrible project".

At Chequers, last year, on his last trip to the UK, the US president described Nord Stream 2 as "a tragedy and a horrific thing being done, feeding billions of dollars from Germany and other countries into the coffers of Russia when we're trying to do something to have peace in the world".

World peace aside, the US also wants to sell its liquefied natural gas (LNG) to Europe so he has additional incentives, but Britain's Foreign Secretary Jeremy Hunt was quick to agree with Mr Trump on the grounds that he considers Nord Stream 2 a threat to European energy security.

Tom Tugendhat, chair of the Foreign Affairs Select Committee told Sky News: "It is not really an energy project. The truth is that if you want gas from Russia to get to Western Europe the existing pipelines exist.

"What Nord Stream 2 does is salami slice NATO by cutting some of the Eastern European countries away from the Western ones and particularly Germany.

"What that means is it allows Russia to circumvent and take action against countries like Ukraine whilst at the same time maintaining gas supply to Germany so it has still has money coming in."

It wasn't so long ago that Russia did turn off the gas taps to Europe in the pricing dispute gas wars with Ukraine in 2006 and 2009.

That was before Russia's annexation of Crimea and the waging of a proxy war in Ukraine's east, so expect Ukraine's upcoming contract negotiations with Gazprom to be especially fraught - just one of new President Volodymyr Zelenskiy's myriad challenges.

If no deal is done by 31 December and Nord Stream 2 isn't completed, European consumers could find themselves short of gas over winter, so the clock is ticking.

The company behind Nord Stream 2 argues the pipeline adds much needed supply capacity at a time when European gas reserves are diminishing and insists it will supplement, not replace, Ukrainian transit.

They reject the suggestion the pipeline furthers the Kremlin's geopolitical interests in Europe.

"You are talking to a project developer representing Western investors who spent approximately a billion euros each, not a spokesperson for the Kremlin", Nord Stream 2 spokesman Jens Mueller told Sky News.

"Those investors should be able to rely on the rule of law and on certainty for a huge infrastructure project."

Gazprom currently exports 65% of its gas supplies to Europe and only 9% to other export markets.

But just as Europe is looking to diversify its supply and energy mix, in part to wean itself off a historic dependence on Russian gas, so Russia is trying to diversify its export markets and is in the process of building another gigantic pipeline through Siberia to China as well as the South Stream pipeline to Turkey

What are the Nord Stream pipelines?

Nord Stream and Nord Stream 2 are two off-shore pipeline routes which will bring natural gas directly from Russia's coast through the Baltic Sea to Germany. Nord Stream was completed in 2012. Nord Stream 2 is due for completion by the end of 2019.

Who's behind it?

Gazprom and a consortium of European investors. ENGIE, OMV, Royal Dutch Shell, Uniper and Wintershall. Each company will fund up to €950m.

Why does Russia want to build it?

For Gazprom, pipelines carrying gas directly to the end consumer are quicker and more cost effective than relying on transit countries like Ukraine, Belarus and Poland. The company has to pay less in transit fees. It also increases its commercial leverage over countries along transit routes.

What about the transit countries?

There are two major transit pipelines bringing Russian gas to Europe. The Brotherhood pipeline goes through Ukraine, Slovakia and the Czech Republic; the Yamal-Europe pipeline goes through Belarus and Poland. Both need substantial investment. Arguably, the former Soviet states should diversify their energy mix if they want to rely less on heavily subsidised gas from a neighbour they consider hostile.

What's it got to do with the US?

The US wants to sell LNG to Europe. Geopolitically, the US is a more reliable energy partner than Russia with a strong commitment to European security through NATO (of which energy security is a component). The US feels that while it stumps up huge sums for NATO, Germany is allowing Russia in through the back door with a huge commercial deal like Nord Stream 2.

What's the UK's view on it?

The UK does not import Russian gas but it does have companies involved in Nord Stream 2 especially in the offshore gas contractor sector. Plus Anglo-Dutch energy giant Royal Dutch Shell is one of the Nord Stream 2 main investors. The UK's foreign policy establishment consider the pipeline a political project and a threat to European energy security. The business community aren't so sure.

Who benefits?

German businesses get cheaper, readier supply of Russian gas. In theory, so should the European consumer too. EU domestic gas production is set to fall 50% over the next 20 years while gas demand is expected to remain stable. Europe needs to fill its import gap somehow - either through LNG or pipeline gas.

What about the environment?

Nord Stream 2 argues a modern pipeline is more carbon efficient than the old transit pipelines and more environmentally friendly than LNG (no fracking or liquefaction energy expenditure). But fossil fuels are fossil fuels, no matter how you cut it. If Europe invested more in renewables, they would not have to depend so heavily on Russia for their energy needs at a time when relations with Russia are strained.