As the North Stream 2 pipeline moves ahead, lower prices on the horizon for EU countries
Ongoing final talks with Denmark
Construction of the North Stream 2 Pipeline Project, which will transport Russian natural gas to Europe through the Baltic Sea, continues. Four of the five countries through which the pipeline will transit - Russia, Germany, Finland, Sweden – have agreed on all issues while negotiations to iron out the final kinks with Denmark continue. The North Stream 2 Pipeline is expected to bring down natural gas prices in Europe by 13 percent if it kicks in before 2020.
U.S. concerns about selling LPG
Mueller stated that the U.S. administration has developed a negative attitude toward the project and has put pressure on the EU. President Donald Trump’s American-centric energy policies and the country’s desire to boost LNG shipments to Europe lies behind Washington’s attitude, he added.
“In accordance with international legislation”
Mueller underlined that all stages of the North Stream 2 project have complied with international agreements and requirements and the laws of respective countries. He noted that the implementation of U.S. sanctions comes with certain terms and will not affect the North Stream 2 project. First of all, all sanctions should be coordinated with the allied countries. Secondly, these sanctions should not damage the energy security of the countries concerned. Thirdly, all pre-existing agreements are not affected.
“The U.S. embargo will not affect the project”
Mueller pointed out that all agreements regarding the construction of the pipeline and the financing of the project were completed before the U.S. sanctions were put in place. “Therefore, current U.S. laws, decisions and regulations can’t be applied to the North Stream 2 project. Nevertheless, we often see speculations about new sanctions. We, as the contractor of the project, are confident and do not comment on political speculations. The commitment of the shareholders to the project is high, financing is guaranteed, and the pipe laying process is proceeding as planned. Therefore, we don’t need any B plan against possible U.S. sanctions.”
Objections in Europe
Mueller said that some of the objections of EU countries to the North Stream 2 project stem from competing economic interests. “For example, 90 percent of Poland’s gas supply is independent of Russian natural gas,” he noted. “The EU also partly finances the country’s LNG facilities and new pipelines from Norway. It’s normal for a commercial concern to emerge in the country against the project.”
Will kick in at the year-end
Mueller said that in four countries (Russia, Germany, Finland, Sweden) where the North Stream 2 line transits, permits were granted. “Denmark rejected our first application due to some concerns about Bornholm Island. In April, we renewed the application. We are hopeful that Denmark will also grant the necessary permits. In other words, barring delays, we expect the project to kick in by the end of 2019.”
Global natural gas demand will increase
The International Energy Agency (IEA), international organizations and leading energy actors predict an increase in global natural gas demand. What’s common about the projections is the expectation that LNG in particular will experience strong growth in demand. However, there are different scenarios about the price and market share balance between LNG and pipe gas.
Imports to Europe to rise 9
13 percent price cut in Europe
According to some scenarios, the increase in demand in Europe is expected to be limited compared to global growth. Nonetheless, some growth is expected, largely because Europe’s own production is expected to decrease.
Imports of natural gas to Europe are predominantly carried out in the form of pipes, as well as LNG. Despite the limited demand increase in Europe, the decrease in production will lead to an increase in price. However, with the introduction of the North Stream 2 gas pipeline before 2020, it is estimated that natural gas prices across Europe will come down somewhat. Although the exact amount varies, the drop is expected to be in the range of 10-15 percent (average 13 percent).
One fourth of Europe’s consumption
Mueller reported that 55 billion cubic meters of natural gas can be transferred to Europe through the North Stream project. After North Stream 2 is activated, it will also transfer the same amount of Russian gas to the continent. The capacity of 110 billion cubic meters of the two projects corresponds to a quarter of the EU’s total annual natural gas consumption.