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  • A series of gas pipelines running between Russia 

  • and Germany is at the center  of an international dispute.

  • It's called Nord Stream 2, and as its construction nears completion,

  • there's mounting pressure to put a stop to this controversial project

  • In August 2020, a Russian political leader and opponent of Vladimir Putin,

  • Alexei Navalny, was hospitalized after

  • being exposed to the nerve agent Novichok.

  • The attempt on his life was allegedly carried out by Russian Federal  

  • Security Service agents on behalf of the Kremlin.

  • The assasination attempt and Navalny's subsequent

  • jailing prompted condemnation from political leaders around

  • the world and saw widespread calls for increased economic

  • sanctions on Russia. It also led to renewed calls for German chancellor Angela Merkel

  • to abandon the Nord Stream 2 project.

  • So Navalny puts an emphasis on Russia's mis-deeds and the question is, is Germany  

  • really going to support and again finish the silver platter pipe deal right as Russia

  • continues to do unacceptable things according to international norms?

  • Do you think Russia have arrested Navalny to use him as a bargaining chip,

  • which they wouldn't have had otherwise, that then releases 

  • them from sanctions and  gets the deal over the line?

  • Certainly, Navalny has been a thorn in the side of the Putin administration  

  • for a number of years and these things may not be connected.

  • What would be interesting though is if a concession, by releasing Navalny, does 

  • help as an alternative to  putting sanctions on Russia.

  • Russsia denies being involved in the assassination attempt of Navlany and

  • denies that his subsequent arrest was politically motivated.

  • The Nord Stream 2 gas pipelines run beneath the Baltic Sea alongside the

  • first Nord Stream pipelines, which were completed in 2011. The pipeline enters the

  • Baltic near St Petersburg in Russia and stretches 765 miles

  • along the seabed before coming ashore

  • again at Greifswald in north-east Germany. The new pipelines, which are due to begin

  • operating in early 2021, can carry 55 billion cubic meters of gas per year, potentially

  • doubling the capacity of gas which can be pumped directly to Germany from Russia.

  • While the Nord Stream 2 project is funded by a consortium of five European energy

  • companies from France, Austria, Germany, Britain and the Netherlands,

  • Russian majority state-owned energy company Gazprom is the sole stakeholder.

  • For Russia, how important is Nord Stream 2?

  • There are commercial interests here at play that Gazprom

  • wants to monopolise and there is a fear that now

  • increasing exports of LNG are challenging the position of Gazprom.

  • The $11 billion project has, however, faced widespread criticism ever since

  • the deal was inked in 2015. Much of the opposition stems from the U.S., which  

  • worries that the new pipe will expand the Kremlin's influence in the region, while

  • several central and eastern European countries, are also concerned about

  • growing dependence on Russian energy.

  • Another country strongly opposed to the project is Ukraine, which has been in a

  • protracted conflict with Russia since 2014. Before the completion of the first Nord

  • Stream pipelines, 80% of gas supplied by Russia to the EU went through the country.

  • However, the gas supply wasn't always reliable due to long standing disputes

  • between the two neighbors. While the Nord Stream projects are set to ensure a

  • steady supply of gas to the EU, Ukraine stands to lose lucrative transit fees.

  • We've had a situation of a political stand-off between the two countries and

  • they're very keen to channel gas towards Europe

  • through any other routes that they can.

  • Even though Nord Stream 2 has been dubbed

  • the pipeline forEurope's energy future,”

  • Germany stands to reap the biggest rewards from the project.

  • Lower wholesale gas prices would give a significant boost to businesses

  • and consumers in the country.

  • That's why many analysts believe that German chancellor Angela Merkel and

  • her government are keen to ensure that the pipeline is viewed as a commercial

  • project, entirely separate from politics.

  • Many in the German political establishment don't see

  • that it is worth pulling the plug on

  • a project that for political or economic reasons they find potentially beneficial

  • and I think the hope is that Germany's neighbours are going to move on.

  • They did with opposition to Nord stream one and they assume

  • that the same thing will happen now

  • But the biggest obstacle to the pipeline is the U.S. As far back as 1981, the

  • Reagan administration imposed sanctions on a similar pipeline project from Russia

  • to Europe. As Nord Stream 2 nears completion, history is repeating itself.

  • The Obama and Trump administrations deemed the pipeline a geopolitical threat,

  • and towards the end of 2019, the U.S. passed sanctions targeting companies

  • involved in the development in an attempt to scupper its completion.

  • Allseas, a Swiss firm specialising in undersea construction, immediately

  • buckled under the threat of sanctions and pulled its vessels from the project,

  • halting construction for a year and costing Gazprom a fortune.

  • Many other international companies were also deterred.

  • In the United States, the question of European gas pipelines is a foreign

  • policy question. In the last few years it has been portrayed more as an

  • economic question but we had sanctions against companies building

  • the pipelines to Germany in the early eighties from the United States.

  • So this is a story that really isn't a news story but a story that is coming up again.

  • So the US has a stance that this interaction between Europe and Russia

  • - this inter-dependence on gas is a strategic liability

  • and that it makes Europe more vulnerable.

  • At the start of 2021, the U.S. Congress expanded its sanctions net to include

  • insurers, certifiers and any companies supporting 'pipe-laying activities'.

  • As a result, 18 European companies have pulled out of the project so far.

  • The majority are companies insuring the project, but also civil engineering

  • companies responsible for running the pipeline's monitoring and safety systems.

  • Russia is trying to counter the sanctions dragnet by increasing its stake in the  

  • development infrastructure, allowing it more control over the construction, free

  • from the threat of U.S. interference. While this may mean they can finish

  • laying the pipe, certifying the project to meet international safety standards

  • isn't something Russia can pull off on its own.

  • One of the major issues is that the main certification company, DNV,

  • withdrew from the project. Now this project has all been built to those

  • standards of that certification company and we think that without that type of

  • certification it may become difficult for any European regulator to

  • actually allow flows through that pipeline.

  • Supporters of Nord Stream 2 also claim that the U.S. has rather

  • more selfish reasons for opposing its construction. For years, the

  • U.S. has been trying to sell more of its own liquified natural gas to

  • the EU. One of Nord Stream 2's most outspoken critics is Texan

  • senator Ted Cruz, a major recipient of oil and gas political donations.

  • For Russia, the delays and possible cancellation of Nord Stream 2 would

  • deal a catastrophic blow to both its geopolitical ambitions and economy.

  • Gazprom's gas sales to Europe make up nearly 70% of its gas revenues,

  • while the company's overall sales account for more than

  • 5% of Russia's $1.6 trillion annual GDP.

  • Russia doesn't have an incredibly diversified economy and it has

  • needed to sell a lot of its fossil fuels to Western Europe which

  • is the closest market, its main market for decades now. Really

  • to keep the country functioning. It can do so through existing

  • infrastructure but by having new pipelines it really entangles Western

  • Europe into a longer term relationship with Russia.

  • It also creates the ability to have lots of new contracts.

  • After four years of fractured ties under Trump, the Biden administration

  • is keen on mending relationships with Berlin and its European allies.

  • However, the sanctions imposed by the U.S. remain an affront to

  • the Europeans for what is considered a domestic affair.

  • For now, German politicians are working to find a compromise with

  • the Biden administration that avoids sanctions.

  • One possible solution is a “snapback mechanismthat

  • mandates closure of the Nord Stream pipelines if Russia threatens Ukraine.

  • Germany point to legislation signed by Russia which says

  • they will not circumvent Ukraine. How strong is that?

  • Whether Germany will really be in a position to push Russia back

  • on that, we will have to see but the German position is, we are a strong

  • and important buyer, we are a geopolitical weightful

  • country and we can push back here.

  • Even as Berlin tries to reduce the uncertainty surrounding

  • Nord Stream 2, the country's approaching general elections,

  • scheduled for September 2021, makes the project a domestic political hot potato.

  • There's a strong chance that the German Green Party could enter government

  • through a coalition with the conservative CDU, which could

  • further complicate the project's completion.

  • As the project enters its final stages, many stakeholders are watching

  • developments in the U.S. strategy closely, as tightening or easing of sanctions could

  • determine the fate of the project. While the economic costs would hit Gazprom

  • and the Russian state hardest, the impact

  • will be felt across the continent. The successful

  • completion, or final abandonment, of Nord Stream 2 could define Europe's energy

  • strategy, and geopolitical relations with Russia

  • and the U.S., for many years to come.

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A series of gas pipelines running between Russia 

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Nord Stream 2: Putin's pipeline with a problem | CNBC Reports

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    Summer posted on 2021/03/11
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