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Watch: Nord Stream 2: US sanctions threat raises the stakes for European gas relations

Germany and Austria called on the US to stay out of European energy matters after the US Senate proposed new sanctions against investors in Russian energy pipelines. In this video, Stuart Elliott looks at how the controversy around Nord Stream 2 has moved to a new, unprecedented level, and how the natural gas pipeline is likely to be built regardless of interference from Washington.


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Blog post: Nord Stream 2: with Europe already divided, the US adds a new layer of geopolitical complexity

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Video Transcript


Nord Stream 2: US sanctions threat raises the stakes for European gas relations


Welcome to The Snapshot – our series examining the forces that determine global commodities markets.


Russia's planned Nord Stream 2 gas pipeline was already making pretty big political waves before the US Senate June 14 threatened sanctions against companies investing in the project.


Five European companies have pledged funding for Nord Stream 2 -- Germany's Wintershall and Uniper, Austria's OMV, Anglo-Dutch Shell and France's Engie.


The governments of Germany and Austria reacted with unusual anger to the US move -- calling on Washington to stay out of European energy matters.


The companies themselves were more reserved, saying they would wait to see how the sanctions plan panned out.


SANCTIONS COULD BE DELAYED, WATERED DOWN


As it happens, it may be more complicated than first thought for the US sanctions to be approved.


On June 21 it emerged that the Senate bill may violate constitutional requirements, meaning it cannot be subject to a House vote. A watered down version may result.


But whether that means the pipeline sanctions will be removed remains to be seen. And we still don't know what President Trump thinks about it all.


But would sanctions derail Nord Stream 2 anyway?


Probably not.


Gazprom had already pledged to move forward alone with the Eur8 billion project -- which is designed to bring up to 55 Bcm/year of Russian gas to Germany -- when Poland succeeding in blocking the creation of the Nord Stream 2 joint venture in August 2016.


There is no reason to believe that Gazprom would stop work to build the pipeline, even if sanctions were to block the five European companies from investing further in the project.


Gazprom should be able to afford the pipeline, which is relatively cheap compared with, say, the Southern Gas Corridor, and of course it has the full backing of the Kremlin.


RUSSIAN GAS STILL DOMINATES IN EUROPE


So what is behind all these political shenanigans? The first thing to say is that Nord Stream 2 has divided Europe.


Countries in northwest Europe support the pipeline because it brings increased supply security at a time of dwindling European gas production.


But eastern Europe opposes the pipeline, saying it deprives them of transit revenues and makes Europe way too dependent on one source and one route of gas.


Gazprom has been accused of a "divide and conquer" strategy in Europe before, and given the latest developments with Washington, it seems that even the traditional close transatlantic relationship could be at risk.


All the while, Russian gas flows to Europe continue to increase.


2016 was a bumper year for Gazprom, with exports at a new record of 179 Bcm. And 2017 is set to see even more gas come to Europe, with current estimates at 183 Bcm.


This is central to all the politicking -- Europe is dependent on Russian gas. But let's not forget, Russia is also dependent on Europe to sell its gas.


It's a symbiotic relationship that has become increasingly fractured in recent years. And with the US increasingly involved -- with its own motivations to encourage the US LNG industry -- it looks like there will be more twists in the Nord Stream 2 tale to come.


Until next time on The Snapshot, we’ll be keeping an eye on the markets.