Russian Oil and Gas Industry: News #2

Don't swallow the BS in this article. Gazprom does have a pipe laying ship and stated several times it would complete the project by itself if needed.

Nord Stream 2 Sanctions Are A Win-Win For Putin

The construction of Nord Stream 2 (NS2) has been a rollercoaster of a project with many ups and downs for both its proponents and opponents. On Friday, Trump approved sanctions on companies involved in the construction of the project. The move by Washington has been strongly condemned by both Germany and Russia, who see the sanctions as evidence of the Trump administration interfering with their internal affairs.

The sanctions mean that the visas of employees can be revoked and assets can be frozen. Allseas, a Dutch-Swiss private company, is going to be significantly affected because it owns considerable assets in the U.S. and the specialized nature of its operations makes it essential for the project.

Washington’s risky game

The NS2 sanctions are one of the few topics about which both Democrats and Republicans can agree on. President Trump’s quick response regarding the signing into law of the sanctions bill shows his intention to be tough with Russia. That toughness is partly to do with the Democrats’ accusation of Moscow’s rigging of the 2016 Presidential Election with the collusion of Trump’s campaign team.

The current administration's 'America First' policy and tough stance regarding alleged trade disadvantages has put the U.S. on a collision course with trading partners. But Washington's newest sanctions on NS2 are arguably the most risky yet with the potential of upending its relationship with a crucial ally.

The losers

Allseas announced, shortly after the imposition of sanctions, that it is suspending construction activities and wait for further information on the U.S.' intentions. Although the administration has 60 days to identify the companies working on the pipeline before it imposes punitive restrictions, the Dutch-Swiss company decided to act preventively. This means that it is uncertain when NS2 will be completed. It is companies like Allseas who are currently set to suffer most from Friday’s sanctions.

According to Gazprom, costs have already ballooned due to Denmark’s foot-dragging concerning approval for activities in its territorial waters. The current suspension could increase the financial burden even more. To the detriment of Gazprom and customers in northwestern Europe who will now need to find alternative sources of natural gas on the international market to replace expected supply from Russia.

Another important loser, paradoxically, is the U.S. itself. Relations between the U.S. and the EU are at a historic low and a trade war between the two may soon be upon us. Washington’s aggressive policy towards Europe under the current regime has already led to a more assertive European foreign policy and even talks of a European army. Although unlikely in the short to medium term, the fact that it is being discussed at all shows how U.S.-European relations have deteriorated.

Even Brussels, which at the start of 2019 was trying to obstruct NS2’s construction, has joined the chorus of criticism being leveled at Washington. According to EU Trade Commissioner Phil Hogan, "Brussels opposes the imposition of sanctions against any EU companies conducting legitimate business."

The unexpected winner

Besides Ukraine, who risked being circumvented by NS2 and Turk Stream, an unlikely country stands to benefit from the sanctions. While it may sound confusing, Russia is a beneficiary of the suspended activities on the construction of Gazprom's most important project. While it costs Moscow hundreds of millions in lost income and additional investments, the country is benefitting on a geostrategic and political level.

For a mere $9.5 billion, NS2’s price tag, Moscow has unintentionally managed to drive another wedge between key Western allies. Berlin is furious about the sanctions and its already fraught relations with Washington are set to escalate even further. According to German Foreign Minister Heiko Maas, the American sanctions amount to “interference in autonomous decisions taken in Europe.”

How the Nord Stream 2 saga will end

What is certain is that NS2 will be completed eventually. Most of the work on the 1,230 kilometer or 765 mile long pipeline has already been finished. Also, the vast majority of the $9.5 billion in investments have already been spent. The biggest problem is that Allseas is one of the few companies in the world with the specialized vessels to weld, test, and drop the pipes to the bottom of the Baltic Sea.

Technically, there are three possibilities for how this saga could develop. The first scenario would see construction activities delayed for an unspecified amount of time, before a breakthrough allows NS2 to be finished. The deadlock could be breached by political means or technical assistance from different suppliers.

In the second scenario, NS2's completion is made impossible after which construction is abandoned entirely. This is the most unlikely scenario.

The final scenario would see Trump start a trade war with the EU and use NS2 as a bargaining chip. Washington may offer a potential sanctions waiver to Allseas to extract more concessions from the EU and Germany. In this scenario, NS2’s competition would only come after the EU-U.S. trade war is brought to an end.

Uncertainty ahead

The next step in this saga is for Brussels and Berlin to send a diplomatic mission to Washington to find ways out of the current crisis. Whoever wins in the ongoing battle concerning NS2, the situation is a win-win for Moscow.

Hole wrote:I know that there are at least 2 or 3 russian ships that can lay pipes but... there is a subsidiary of Gazprom that owns a few satellites and earns money from selling services to other companies working in the Arctic so why does Gazprom not own a company that has the capacity to build a pipeline like Nord Stream II on it´s own? Should be a useful asset for the largest gas company in the world.

Gazprom’s Latest Plan To Avoid U.S. Sanctions

Trump's signing the 2020 NDAA into law on Friday, and with it, sanctions targeting European and Russian companies laying the Nord Stream 2 pipeline, had the immediate impact of forcing a work stoppage over the weekend as Allseas, the Swiss company that is Nord Stream’s main contractor, confirmed its workers, as well as partner contractors, have laid down their tools.

The new US punitive measures specifically target companies and their executives assembling the pipeline, including the very ships laying the pipeline on the controversial 760-mile project that would allow Russia to export natural gas directly to Germany and is expected to come online within the next year. Despite Allseas set to pull out its fleet of pipe-laying ships, Russia and Germany are vowing to move forward unimpeded, per the WSJ:

Its ships Solitaire and Pioneering Spirit, the largest construction vessel in the world, will remain in the area but are no longer laying the pipes, a spokesman for Allseas said. He added that as of Thursday, when work ceased, the project was about one month from being completed.

Jens D. Mueller, a spokesman for Nord Stream 2’s parent company, said that the pipeline would be finished despite Allseas pulling out its fleet.

And Russia is now hitting back, first by promising Washington will not impede the project, and further with reports that Moscow is drawing up retaliatory sanctions against the US, while not citing specifics.

Majority stakeholder Gazprom has indicated it's already taken measures to complete the project while circumventing the US measures. The WSJ continues:

In preparation for the sanctions, Gazprom has retrofitted its own ships as well as ships belonging to Russian contractors that don’t do business outside Russia and would therefore be immune to American sanctions, according to one official of the company who spoke on the condition of anonymity.

One contractor already involved in the project is the Russian subsea-pipeline construction firm MRTS JSC, a company that operates ships which could be used to complete the pipeline, according to Gazprom.

A Russian Foreign Ministry statement described what it claims is in part an attempt by Washington to force its pricey liquefied gas on Europe: “As a result, Europeans will lose on all fronts.”

The statement added: “Washington decided that it shouldn’t spare anyone, even its closest allies in NATO, for the sake of its geopolitical ambitions and commercial profit.”

Germany, meanwhile, is also standing strongly against what its leaders have called Trump's "meddling" in Europe's energy independence. Over the weekend German finance minister Olaf Scholz slammed the US legislation as marking “serious interference in Germany and Europe’s internal affairs and our own sovereignty”.

“We object to them in the strongest terms,” he told a German television broadcaster, and added that the measures were “incomprehensible and improper for friends that are also linked by our common membership of NATO.”

This in the face of the US ambassador to Berlin, Richard Grenell, provocatively touting the sanctions as “extremely pro-European” in comments made in the wake of Trump's signing them into law on Friday. He cited anecdotal evidence to say he had “hearing from European diplomats all day today thanking me for taking such action.”

“The US policy is for European diversification and making sure that there are multiple sources [of energy],” he added. And invoking the US position that it is Moscow that seeks to stymie European energy independence, he warned against a scenario in which “one country or source has the ability to create undue leverage over Europe” — in reference to the nearly $10BN Nord Stream 2 project.

By all accounts, however, even reportedly by some within Trump's own administration, it is indeed "too little too late" — as a Bloomberg report recently made clear, citing anonymous administration officials.