Our Analytics 12 november — 15:46

Gazprom drowns in problems, Baku expands gas pipelines (Our comment)

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BY ELNUR MAMMADOV, ECONOMICS SECTION

Threatening clouds are gathering over the Nord Stream 2. Following the United States, this was already officially announced in European circles. In particular, the European Commission notes that Europe doesn't need the Nord Stream 2 gas pipeline, since in the future the consumption of natural gas in the European Union will be reduced.

They calculated: taking into account the expected reduction of domestic fuel consumption in the EU by 2030, the availability of the already existing infrastructure for gas imports and the growing competitiveness of LNG supplies, the construction of such a system as Nord Stream 2 becomes meaningless.

The Nord Stream 2 project involves the construction of two strings of gas pipeline with a total capacity of 55 billion cubic metres of gas per year from the coast of Russia along the bottom of the Baltic Sea to the coast of Germany. If the Turkish Stream, intended for the provision of Russian gas to South and South-Eastern Europe, was recently viewed by Gazprom with suspicion, the implementation of Nord Stream 2 was not in doubt: large European companies were connected to the project by billions of dollars, which only strengthened the confidence in this project, but the Americans once again intervened with their all-powerful sanctions, and the project is on the verge of death.

Finally, the issue will apparently be resolved in December, when the operator of the Nord Stream 2 project Nord Stream 2 AG will begin negotiations with banks on attracting funding. And even experts interested in implementation don't rule out the impact of new US sanctions on Nord Stream 2 project financing, the total cost of which is 9.5 billion euros. Without going into the political aspects of the problem, one can firmly say that the decision of banks will play a big role in the future of the project. And that's why.

The only shareholder of Nord Stream 2 AG is Gazprom. The project partners - Shell, OMV, Engie, Uniper and Wintershall - promised to finance Nord Stream 2 for a total of 50%, or 950 million euros each. The remaining amount of 4.75 billion euros should be provided by Gazprom. Partners have already invested 30% of the agreed amount - 285 million euros each. The remaining 70% of the cost of the pipeline is planned to be covered by attracting project financing. But banks in such conditions do not like to take risks. And partners today are thinking hard too. They received clarification on the new law on sanctions from the US Treasury Department Office for Foreign Assets Control (OFAC).

And the law, signed in early August by President Donald Trump, presupposes, in particular, the right of the US president to impose sanctions on persons who invest more than $5 million a year or $1 million in a lump in the construction of Russian export pipelines. How seriously the US intention to oppose Russian energy projects is evident from the fact that the law explicitly states: the US will continue to oppose the Nord Stream 2 project. Henceforth, the maximum term for financing Russian oil and gas companies is reduced from 90 to 60 days.

On Wednesday, the European Commission agreed on amendments to the Gas Directive, which is part of the Third Energy Package of the European Union. Henceforth, the key principles of the EU energy legislation will be applied to all gas pipelines that pass through the territory of the European Union. The norms of the European legislation provide for the non-discriminatory establishment of tariffs for pumping gas, the division of activities for the sale and transportation of gas, the possibility for third parties to pump fuel through the gas pipeline.

But it is interesting that the European Commission, which is against Nord Stream 2, will continue to support the transit of Russian gas through Ukraine. Although Moscow has never tried to conceal its intentions to get rid of Ukrainian transit of its own gas. And then it becomes quite obvious that the second branch of the Turkish Stream expects the same picture, designed to deliver Russian gas to Europe, to finally get rid of Ukrainian dependence. Yes, Moscow is persistently trying to lay its gas pipelines around Ukraine, but it is also persistently forced to preserve this route.

Moreover, during the recent visit of US President Donald Trump to Beijing, a bilateral agreement on the development of a liquefied natural gas (LNG) plant in Alaska was signed. The project is estimated at 43 billion dollars and may become one of the alternatives to the Russian gas pipeline 'The Power of Siberia.' It provides for laying - from the northern deposits in Alaska a 800-mile gas pipeline to the LNG plant in the south of the state, where liquefied gas can be sent to China by tankers.

How this could affect the fate of the Power of Siberia under construction with a capacity of 38 billion cubic metres per year is difficult to say. But one thing is clear: the Russian giant Gazprom, which for many years was in the hands of the Kremlin a powerful tool of pressure on the countries of the region, is beginning to lose its significance. And if you look deeper, you can even talk about the future troubles that await the company, and, consequently, Russia. And it is no accident, apparently, there were reports that Gazprom itself is already thinking about reorganisation. Even the division of the company is not excluded.

And against this background, the successes of the Azerbaijani project 'The Southern Gas Corridor' are especially prominent. More and more often loud statements are heard and even prospects of expansion of this gas corridor are discussed. This is the whole topic of a separate conversation. In the meantime, one would like to note that Gazprom's dismal prospects are unlikely to bypass Azerbaijan and our entire region as a whole. After all, huge flows of Russian gas are now directed to Europe, and to the post-Soviet countries, and to Asia. And if somewhere and someone partially or completely blocks these flows, then they will have to be sent along new routes. And here is just Azerbaijan with its developed gas transportation infrastructure. All this can lead not only to redistribution of routes and markets, but also to more terrible consequences. And you have to be ready for them.

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