Nord Stream 2 Finance Deal Agreed

The five companies investing as Gazprom's partners in the construction of Nord Stream 2 gas pipeline have agreed a finance structure, they said April 24 in separate statements.

Anglo-Dutch Shell, French Engie, Austrian OMV, and Germany's Uniper and Wintershall signed financing agreements with Nord Stream 2 AG, the company responsible for the planning, construction and future operation of the Nord Stream 2 pipeline.

At the moment, Russian gas export monopoly Gazprom is the sole shareholder in NS2, as the companies elected not to respond to a legal challenge to the formation of a six-way joint venture, in which Gazprom would own 50%, that the Polish anti-trust agency posed last summer.

That left Gazprom on its own, since when it has procured some of the linepipe, signed logistics contracts and carried out some of the diplomatic work with Sweden, in order to facilitate the pipeline laying process, for which it has contracted Allseas.

The 1,220-km pipeline will be able to transport a total capacity of 55bn m³/yr of gas, which German producer Wintershall said in its statement would respond to the need of the European Union for additional gas imports and thereby improve security of supplies to Europe.

It will follow the route of Nord Stream 1 (see below) for most of the way, running from the coast of Russia via the Baltic Sea to Greifswald in Germany, acting as a direct link between Russian reserves and European consumers and would mean a corresponding cut in Russian gas flows through Ukraine.

The five energy companies have each committed to provide financing and guarantees for up to 10% of the total cost of the project, estimated to be €9.5bn ($10.3bn).

Each company will provide a long-term funding facility of €285mn expected to be drawn down in 2017. In addition, funds of up to €665mn will be provided to cover a combination of short and long-term funding and guarantees. 

Nord Stream 1 surfaces at Greifswald

(Credit: Nord Stream AG)

The drawdown of the €665mn fund will depend on future decisions by Nord Stream 2 AG in respect of the overall financing of the project. 

In its statement, OMV said project financing for 70% of the project costs will be pursued. For this project financing, the project company will turn directly to the capital markets. According to the agreements, OMV will directly secure 30% of the pro-rata project costs through long-term financing. Should it not be possible to secure project financing for the remaining 70% of the pro-rata project costs, OMV is planning to make medium-term financing available to the project company, as are the other four.

Nord Stream 1 is fully operational but only running at about 80% capacity as the shipper Gazprom is constrained from using the full capacity of Opal, which brings some of the gas south through Germany from Greifswald to the Czech Republic.

A German court is still determining the legality of the European Commission's decision last year to raise the limit on Opal from 50% to 80%, following another challenge, this time from the Polish gas supply giant PGNiG.

William Powell