Atlantic Council: how “Nord stream – 2” will change Europe

Atlantic Council: как «Северный поток - 2» изменит Европу

Natural gas plays an important role in Europe. It is a transitional technology in the process of transformation of the system of power generation and has significant potential for reducing carbon dioxide emissions in the transport and heating sectors. However, Europe is in a strong dependence on imports of natural gas. Although it is expected that in the long-term demand for natural gas in Europe will decrease, some researchers still predict a relatively constant level of gas demand.

Meanwhile, it is expected a significant reduction in gas production in Europe, which in the long run will increase its dependence on gas imports. Russian gas and LNG will allow to meet the growing needs of Europe. Currently, the construction of the pipeline “Nord stream – 2” with a throughput capacity of 55 billion cubic meters of gas per year, which will deliver natural gas from Russia directly to Germany.

“Nord stream – 2” is causing a lot of controversy and disagreement. The pipeline will bring some benefits to Germany: he will provide the increase of the flow of transit gas and will serve as an additional supply route in the event that, for whatever reason, other routes are unavailable. However, with the emergence of the “Nord stream – 2” gas flows running through Ukraine will decrease. When will the “Nord stream – 2” and “Turkish stream”, 205,9 billion cubic meters of Russian gas will be annually delivered to Europe, bypassing Ukraine. When will these pipelines, Russia will be able to significantly reduce the flow of gas going to Europe through Ukraine and Poland, which will lead to a decline in their incomes from gas transit and will weaken the position of these countries at negotiations with Gazprom.

As “Nord stream – 2” will change gas flows in Europe in the long run?

To analyse the effects of the “Nord stream – 2” gas supplies via gas pipelines and LNG imports, we consider two scenarios: the baseline and the identical scenario, but without the “Nord stream – 2”. Based on the predictions made in the New Policies Scenario (new policies Scenario) International energy Agency, from 2018 to 2040, the European demand for natural gas will decrease by 15%. During the same period, natural gas production in Europe will fall by 40% from 2018 in the baseline scenario, and the level of production in Norway will fall to 55% from 2018. In the baseline scenario, the carrying capacity of “Nord stream – 2” is 55 billion cubic metres of gas a year, “Turkish stream” – 31.5 billion cubic meters of gas per year, and the TRANS-Adriatic pipeline – 10 billion cubic meters of gas per year.

The EU intends to maintain Ukraine’s status as a transit state for Russian gas, but Ukraine’s transit pipelines need to be updated. Meanwhile, Gazprom seeks to minimize the flow of gas, going transit through Ukraine. Thus, we assume that in the baseline scenario of the transit flows of Russian gas through Ukraine should not be. Perhaps this is too serious a restriction, but if to remove this restriction, the calculations for 2030 show that the volumes of gas transit through Ukraine will not significantly increase. However, this transit of gas will be needed in case of severe cold, reducing the import of LNG to Europe or interruptions in the operation of the other pipelines.

“Nord stream – 2” will make Germany more powerful transit state. In particular, by 2030, “Nord stream – 2” will allow to increase volumes of gas transit through Germany for 12 billion cubic meters per year. On the other hand, by 2030 the volume of gas transit from Poland to Germany through the pipeline “Yamal – Europe” will be reduced by 17 billion cubic meters per year. In 2017 and 2018, the pipeline worked almost at full capacity.

The capacity of “Nord stream – 2” will not be used fully (according to forecasts, it will be 95 instead of 110 billion cubic meters of gas a year to the “Nord stream” and “Nord stream – 2”). According to other calculations, if the growth of demand for gas in Europe, “Nord stream – 2” gas pipeline “Yamal – Europe” will be used with a heavier load, and the transit of gas through Ukraine will be increased only in a pinch. In 2017 and 2018 the utilization rate of the supply route through Ukraine accounted for more than 65%, more than 80 billion cubic meters per year. Thus, Ukraine now has a transport monopoly, where soon she will not.

“Turkish stream” also plays an important role in reducing the volumes of gas transit through Ukraine. The first line of “Turkish stream” covers the Turkey’s demand for gas. The second line is designed to deliver natural gas from Russia to Turkey, and possibly via Bulgaria and Serbia to Hungary. According to additional calculations, in the absence of the second branch of the “Turkish stream” gas supplies via Ukraine will always be necessary.

When the “Nord stream – 2” will work, will also change and the flows of gas from Norway. “Nord stream – 2” will reduce the growth in LNG imports to Europe. When the pipeline will come on stream, Norwegian gas will be supplied not in Germany and in North-West Europe, where it will displace LNG. Because of the “Nord stream – 2”, by 2030, total LNG imports to Europe will be reduced by 30 billion cubic meters, which is quite a significant figure.

The whole “Nord stream 2” will have a significant impact on gas flows in Europe. Germany will play a more significant role as a transit state for Russian gas, and the volume of gas transit through Ukraine and Poland in the future will be significantly reduced. However, the transit of gas through Ukraine will be needed in case of severe cold, the reduction in imports of LNG to Europe and the failures of other pipelines. “Nord stream – 2” will also reduce the growth rate of LNG imports to Europe.

Often hear the statement that “Nord stream – 2” is necessary to ensure European energy security. This is wrong in that case, if we manage to achieve diversification of supply, but surely given the diversification of supply routes. At the disposal of the EU has a sufficient number of pipelines and LNG terminals to import all its gas, not using “Nord stream – 2”. In connection with the emergence of the “Nord stream – 2” Ukraine and Poland in the future will face a significant drop in income from gas transit and weakening its position in negotiations with Gazprom.

Mike Gunther is an expert on energy strategy and policy of the German company Stadtwerke München.

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