Denmark green-lights Nord Stream 2 as US mulls sanctions

Denmark has given the thumbs up to the construction of the missing 147km-long stretch running in its waters of the Moscow-backed Nord Stream 2 gas pipeline connecting Russia and Germany through the Baltic Sea, paving the way for its near-completion, despite strong opposition from the White House, which is now considering sanctions. 

The Danish Energy Agency said it is “obliged to allow the construction of transit pipelines with respect to resources” under the UN Convention on the Law of the Sea. As of today, more than 2100km of the pipeline, which runs through Russian, Finnish, Swedish, Danish and German waters, have been laid.

The project, which is fully owned by Russia’s state gas company Gazprom, has a price tag of €9.5bn. Half will come from Gazprom itself, with the remainder from five European energy and chemical companies: Shell, OMV, Uniper, Wintershall and ENGIE. Once operational, it will supply Europe with an additional 55bn cubic metres (bcm) of Russian natural gas per year.

The pipeline has stirred much controversy as its rationale has been repeatedly questioned, especially in light of EU efforts to diversify its gas sources and decrease dependence on Russia, and because it further undercuts the role of Ukraine in EU gas supplies. 

“Why would you waste billions of dollars and damage the environment with another pipeline when there is a perfectly good/direct pipeline to Europe which runs across Ukraine? Ukraine also has 28bcm of gas storage capacity to assure energy supply to Europe through the winter,” Timothy Ash, a senior emerging market strategist with BlueBay Asset Management, wrote in a note. “[It is a] pure geopolitical play by Moscow to cut Ukraine out of the gas transit equation in another efforts to undermine and destabilise Ukraine - and the EU is playing along with it.”

However, the Switzerland-based Nord Stream 2 company claims the Ukraine pipeline needs emergency repairs to be a valuable export route for Gazprom gas, writing on its website that “by and large, diversification is already a reality within Europe’s gas market”. 

“In light of the EU’s strong diversification, it appears that it is the West that is using a simple pipeline project for political purposes.”

If EU countries appear divided over Nord Stream 2, the White House has been vocal in its opposition to the project, in part because it imperils its strategic objective of selling liquified natural gas to the EU. 

“I would be surprised if the US does not roll out sanctions on things related to Nord Stream as they are eager to get a foothold in the European gas market via LNG exports,” Mr Ash wrote. 

Sanctions have been under assessment for months, although they failed to materialise so far. 

“The United States will continue to look into all tools at its disposal regarding this project,” the US press quoted a spokesperson for the Department of Energy as saying. “All options are on the table.”