(Bloomberg) -- In a major boost for Russia’s effort to tighten its grip over natural gas supplies to western Europe, Denmark said it will allow the controversial Nord Stream 2 pipeline to pass through its territory.
The decision removes the last important hurdle for the $11 billion project, which is slated for commissioning by the end of this year and bolster gas flows from Siberia into Germany. The link has drawn the threat of sanctions from the U.S., which wants Europe to buy its liquefied natural gas. It risks reigniting a feud between Donald Trump and Danish lawmakers that erupted in the summer after the U.S. president’s offer to buy Greenland.
Russian President Vladimir Putin welcomed the pipeline decision. “Denmark showed itself to be a responsible participant in international relations, defending its interests and sovereignty and the interests of its main partners in Europe,” he told a briefing in Budapest, where he was on a visit.
The green light gives Gazprom PJSC, Russia’s gas export champion and already Europe’s biggest supplier, yet another route to one of the world’s most liquid gas markets. While Trump has accused Russia of using its natural gas as a political weapon, it’s ultimately a commercial deal over which Washington has little influence, according to Raffaello Pantucci, Director of Security Studies at the Royal United Services Institute in London.
“It’s frankly too far advanced,” Pantucci said. “Who are they going to sanction?”
The approval also gives Russia more clout in ongoing talks with Ukraine on a new gas transit deal, increasing the risk of a disruption from Jan. 1. Uncertainty about whether those two nations can agree on time has been weighing on forward prices in Europe and sending incentives for traders to stockpile gas as a cushion against disruption.
“If Gazprom are confident in Nord Stream 2’s imminent completion, it may encourage a tougher negotiating stance on any new Ukrainian transit deal,” said John Twomey, a gas analyst at BloombergNEF in London. “If anything, the risks of a disruption on Jan. 1 have gone up as a result of this.”
The pipeline has divided EU governments, with nations led by Poland concerned about the bloc’s increasing dependence on Russian gas.
“It is not too late to stop NS2,” an official at the U.S. embassy in Germany said. “There are clear negative energy security and geopolitical implications for Europe from Putin’s pipeline. The U.S. government agrees with the European Parliament, the U.S. House and nearly 20 European countries in our opposition to NS2.”
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Denmark said on Wednesday it will allow the pipeline to pass southeast of the island of Bornholm in the Baltic Sea. The company behind the pipeline submitted the route plan in April. Denmark had been conducting a security and environmental review of the project.
Trump had objected to the link, instead urging the European Union to diversify the sources of its energy and dilute Putin’s economic influence over the region. U.S. officials have also warned that project partners are at an elevated risk of U.S. sanctions.
The approval is another snub of Trump by the Nordic country after it ruled out his proposal to buy Greenland this summer. The president responded by canceling a state visit to Denmark.
The Danish approval covers 147 kilometers (91 miles) of the project. Nord Stream 2 said in its statement that it has already completed 87%, or 2,100 kilometers, of the pipeline in Russian, Finnish and Swedish waters as well as most of the German part. Dan Jorgensen, Denmark’s minister for climate, energy and utilities, declined to comment on Wednesday.
Nord Stream 2 said it will continue its “constructive cooperation with the Danish authorities to complete the pipeline.”
Six Weeks
Gazprom CEO Alexey Miller said that the pipeline is expected to be completed on time by the end of the year. “The remaining 147 kilometers -- that’s five weeks of work,” Miller told reporters in Budapest.
A statement from the company highlighted some uncertainties in that timetable. Nord Stream 2 said Wednesday the actual start of the construction depends on a number of legal, technical and environmental factors, which will “take a few weeks” and the project aims for completion “in the coming months.”
Gazprom can’t use the permit for the next four weeks when all involved parties have leeway to make a complaint under Danish law. Those issues left analysts anticipating some delay beyond Jan. 1 for the completion of the link.
“It’s unlikely that Nord Stream 2 is online in time for Jan. 1, so Ukrainian transit disruption risks remains,” said Twomey.
While Gazprom owns the pipeline, half the financing of the 8 billion-euro capital cost comes from five European companies: Uniper SE and Wintershall of Germany, OMV AG of Austria, Engie SA of France and Royal Dutch Shell Plc.
Dutch gas for the first quarter declined to the lowest since at least 2017 as the region is oversupplied with the fuel, storage sites across Europe are full, and LNG imports surge.
©2019 Bloomberg L.P.
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