Nord Stream II: High Hurdles?

One of Europe's leading gas thinkers has poked some holes into the prospects of developing the Nord Stream II project.

In his presentation at an Atlantic Council event in Istanbul, Turkey on Friday, 20 November, Professor Alan Riley will point out that Nord Stream II, a joint project involving majority shareholder Gazprom, E.ON, OMV, Shell, Wintershall and Engie, is a threat to Ukraine, to countries in Central & Eastern Europe, to Western Europe, impacts EU energy policy, and affects the EU's policy on Ukraine.

Additionally, the further development of Nord Stream, according to Prof. Riley, may not be in compliance with the EU's Third Energy Package, nor with EU antitrust laws.

"If Nordstream II is built and comes onstream in 2019," he explains, "allowed to use its full capacity of 55bcm, then Ukraine's transit revenues from Russian natural gas will be reduced to minimal levels - Ukraine will lose over $2 billion in revenues from transit flows."

Of the threat to countries in CEE, Prof. Riley says: "The prospect of reverse flow gas, i.e. Russian gas flowing to Germany via Nord Stream and then reverse flowed eastwards, is not particularly reassuring for CEE states or Ukraine. Ultimately, the CEE states and Ukraine are dependent on (a) German goodwill, and (b) Russia not attempting to manipulate gas flows to limit the amount of gas that can be deployed for reverse flow."

Moreover, he adds that Nord Stream II at full capacity will undermine market deconcentration and diversity in Western Europe, and impact European Union energy policy.

Among several other aspects that threaten the project's completion, Prof. Riley notes that financing the building of Nord Stream to the tune of €10 billion is likely to be a major challenge for Gazprom. He says, "Even with partners such as Shell, the collapse in oil prices, plus the financial constraints for Gazprom in also being involved in the Power of Siberia and Turkish Stream will make financing difficult. There is also the issue of how EU and US sanctions will impact on Gazprom's capacity to fund the project."

Alan Riley presents at the Energy and Economic Summit on 20 November.

-Drew Leifheit