September 17, 2021

In late summer a pipelayer of the Russian Gazprom engaged in the NS2 construction finished its work in the exclusive economic zone of Denmark and headed to Germany’s sea waters.

Germany is awaiting for upcoming parlimentary elections appointed for September, 26. During the election campaign, Alliance 90/The Greens (rating – 20%), opposing the completion of the construction of the scandalous gas pipeline (95% of the pipe has already been laid), and against its use (in case of completion), is gaining more and more voters’ support .

Alliance 90/The Greens insist on the necessity to stick to the chosen by Angela Merkel policy towards decarbonization of the German economy and diversification of the supply of “blue fuel” to Germany. Now 50% of natural gas comes to the country from the Russian Federation (24% – from Norway, 20% – from the Netherlands and 6% is developed on the territory of Germany). If NS2 is launched, Germany’s dependence on Russia will increase even more.

If a parliamentary coalition is formed as a result of the elections within the CDU/CSU – Alliance 90/The Greens – Free Democratic Party, the NS2 commissioning may be delayed indefinitely.

At this time, there are internecine debates in both houses of the US Congress – in the Senate and in the House of Representatives – regarding the feasibility of renewing sanctions against owners and contractors building NS2 (which Joe Biden has recently canceled).

The American establishment continues to put pressure on the German government, urging it to buy not Russian gas from NS1 and NS2, but liquefied natural gas from the United States, delivered by tankers to LNG terminals. Moreover, while Germany is still completing four new terminals (Brunsbüttel, Wilhelmshaven, Stade and Rostock), Poland offered Germany to use its terminals in the Baltic ports of Świnoujście and Gdansk. Also, Germany can use two more terminals in the neighborhood – in Rotterdam (Netherlands) and Klaipeda (Lithuania).

At the same time, even taking into account the lifting of US sanctions from NS2, so far none of the respectable companies engaged in certification and insurance of pipelines has expressed a willingness to carry out the relevant work and issue the necessary permits, without which the start of NS2’s operation is impossible.

The key news for understanding the future fate of the pipeline is that now the EU’s Third Energy Package covers NS2 without any exceptions. Gazprom lost both the first instance and the appellate court on this issue. As a result, an independent operator (from the owners of the pipeline) is now obliged to provide technical support for NS2 and natural gas piping through it, and third parties must be allowed to fill it (moreover, at the level of 50% of supplies). Thus, it will be much more difficult for the Kremlin to control the gas pipeline and use it as a powerful manipulative tool of an energy and, indirectly, political nature.

Of course, nothing prevents Gazprom’s management from setting up an operating company on behalf of stalking horse. It will be more difficult to play as an independent supplier, but also possible. For example, Moscow may well agree on gas supplies for NS2 with post-Soviet Baku, Astana, Tashkent and Ashgabat, still being under its significant influence. Naturally, an ordinary citizen of the Federal Republic of Germany will not care whether Azerbaijani, Kazakh, Uzbek and Turkmen gas is really supplied through the NS2 pipeline, or it is there virtually on the basis of some kind of mutual settlements or any other agreements. Here everything will depend on Berlin’s position and its political will – to closely “follow the movements of the hands” of the Kremlin or “turn a blind eye.” Thus, the answer to the question of whether NS2 will become a powerful energy weapon for Russia will largely depend on the United States and Germany.

It is also important to keep in mind that Washington and Berlin jointly obliged Moscow to start negotiations with Kyiv in September this year regarding the conclusion of an agreement on the further transit of the Russian gas through Ukraine after December 31, 2024 (the expiration date of the current agreement).

At the same time, depending on the presence / absence of a gas transit agreement, Kyiv will decide to conclude an agreement on the purchase of the Russian gas or to completely abandon it for internal needs. Moreover, the Ukrainian market of 52 billion cubic meters is very important for Gazprom, whose revenues and capitalization have been falling for the last five years from year to year.

So, for today, the future of the NS2 project is balancing between dramatically different options. Thus, the gas pipeline may become a triumph for the Kremlin, strengthening the position of the existing authoritarian regime, however, the likelihood of this greatly decreased after the EU’s Third Energy Package application to the pipeline. In the absence of the necessary certification and insurance, NS2 will face a complete failure – the completed pipe will be dead weight on the seabed. The most likely scenario is the transformation of the commissioned NS2 into V. Putin’s Pyrrhic victory, since the gas pipeline will not be able to bring those super profits that the Kremlin expected, and the costs of this project will be repaid for decades.

It remains to wait for the results of the elections to the Bundestag on September 26 and the subsequent formation of the government coalition in Germany, after which the further fate of the Russian geo-economic and geopolitical project should become clear.

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