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Almost immediately after Bundestag this Wednesday approved the Third EU Energy Package, Russians realized that the document doesn’t really meet their interests. Against this background, the initial euphoria over Denmark’s permit for building the Nord Stream 2 gas pipe section on its continental shelf evaporated, so the Kremlin decided to approach the key issue of concluding a gas transit deal with Ukraine, applying some sophisticated tactics.
Following this approach, certain statements flooded the media regarding the pipe construction schedule. Among them was the statement by the press service of Gascade, an operator of Eugal gas pipeline, which is an onshore section of Nord Stream 2, that they plan to put its first string into operation as early as January 1, 2020, while the second one will have been completed before the end of next year. It’s 480km-long and connects the terminal in Lubmin, northern Germany, with the terminal in the village of Deutschneundorf in Saxony. The statement claims Eugal’s full annual capacity will stand at 55 billion cubic meters per year,” the report said, according to Аpostrophe.
Similar optimism emanates from Nord Stream 2 AG as the company in declares readiness to start gas deliveries as early as in the spring of 2020. Vladimir Putin joined in, alleging a risk of termination of Russian gas transit via Ukraine and claiming Naftogaz has been aggravating the situation in Gazprom talks on a new contract after 2020. In his statement though, Putin tentatively hints at a merely technical nature of issues Russia is set to quickly resolve in NS2 construction before it can be launched. But is it really the case?
These messages can be seen as an element of a “psy-ops” where the Russians are trying to persuade Ukraine to sign a new gas transit deal on terms only favorable to Moscow, similar to what they did in 2009. The core of the problem Russia is facing is that they are not able to complete the construction of routes bypassing Ukraine in time to exclude Ukraine from the system of Russian gas export to Europe, at least in the near future.
Despite all that optimism voiced by Eugal, Nord Stream 2 AG and Putin personally, there is no exact date for the expected launch of the Nord Stream 2 – the closest, although not entirely realistic, deadline for its launch at full capacity is autumn 2020, which testifies to the project’s failure to start in due time. Indeed, Russia intended to launch the pipe bypassing Ukraine before, not after the Ukrainian-Russian gas transit contract expires. Besides, despite large-scale spins claiming Germany passed legislation in Russia’s favor, it has not yet positively affected the new pipe, while it’s in Brussels where Russians will ultimately have to agree on the gas route’s capacity, which won’t be a task far from easy. Problems have also mounted heavily around the Stockholm arbitration award in favor of Naftogaz in its dispute with Gazprom, which led to the arrest of Gazprom subsidiaries’ shares, including those of Nord Stream 2 AG. So, the issue cannot be resolved without Ukraine’s consent to a “settlement, the terms of which Putin has voiced at the BRICS summit. He said Russia declared its readiness for any agreements on gas transit and deliveries with Ukraine with the mediation of the European Commission, even with a 25% discount (albeit a fake one).
At the same time, Ukraine is being pushed into agreeing to abandon the claims it raised in the Stockholm arbitration dispute, which the Stockholm court satisfied. Moreover, it’s not even a matter of a $3 billion debt of Gazprom, but the very essence of the award, which explicitly states that the current contract is concluded on terms favorable to only one side. As for the practice of pre-trial dispute settlement it is supposed to be sealed before the court rules to anyone’s favor, not after it has already done so.
Moreover, right now there is another legal dispute ongoing in Stockholm since April 18, 2018, where Gazprom on July 14, 2019, filed a “Statement of Claims” to Naftogaz. Isn’t it strange how “Russian settlement” works? However, it’s the “signature style” of the Kremlin to accuse the other side of the “sins” that they themselves committed.
This is where we come to the most interesting part, because the “starting conditions” are as follows: Nord Stream 2 and its mainland part Eugal will not work at full capacity until September 2020, and moreover, it is unclear as of today whether they can even exceed a 50% load. Gazprom is still facing the urgent need to preserve gas transit via Ukraine, and if a new agreement isn’t concluded with Ukraine, this will lead to non-fulfillment of existing contracts with significant financial and reputational losses.
Moreover, the situation for Gazprom is substantially complicated by the fact that Europe doesn’t really need Russian gas anymore – the Russian gas monopoly in the conditions of the free and transparent European gas market is losing markets, with the latest example being Poland and Romania, which will soon completely abandon the services of the Russian Federation in this regard. That is why Russia’s Ukraine game involves not only pushing Naftogaz to giving up on the Stockholm court award and signing of a 12 month deal, which would be extremely beneficial to Russia, but also resolving the urgent task of regaining the Ukrainian gas market.
Given the importance of the task for the Kremlin, it can be predicted that most of what we’ll be reading in the media about Nord Stream 2 will be an element of a hybrid war, which should be seen as preparation for a gas war, which is likely to start January 1, 2020, whether Ukraine wants it or not. It’s not Kyiv that is starting it and that’s why it’s inevitable: after all, taking into account the high stakes — the possible termination by Ukraine of “post-Soviet gas relations” completely based on corruption schemes, the very possibility of building a civilized gas market there is a prize worth fighting for, and the main problem is that the Kremlin is well aware of this, too…