The plans for the construction of a new gas pipeline along the bottom of the Baltic Sea for the delivery of liquefied gas from Russia to Europe cause a flurry of emotions. But against the backdrop of the radical shake that the industry is experiencing because of COVID-19, this solution seems to be the best.

As the quote attributed to the great American writer Mark Twain reads, “History doesn't repeat itself, but it often rhymes.” The construction of a gas pipeline rarely attracts such lively attention, but Nord Stream is undoubtedly just such a case. When it comes to the new gas pipeline, which will stretch 1224 km from Russia to Germany, some politicians, journalists and analysts react quite emotionally. The history of the project began in the 2000s as part of negotiations on energy issues between the European Union and Russia.

Passions have been heating up since the official launch of the project in the summer of 2005. In my lectures I often refer to the statement of the Polish Minister of Defense Radoslaw Sikorski at that time, who compared the Nord Stream to the Molotov-Ribbentrop Pact concluded between the Soviet Union and Nazi Germany in 1939.

His words are an illustration of the geopolitical and historical tensions that this project has exacerbated from the very beginning. And now, quite in the spirit of a quote from Mark Twain, such sentiments are making themselves felt again.

Heated debate

In the early 2000s, I often attended discussions in Germany on energy issues. Against the background of the first gas crisis in January 2006, when the export of Russian gas through Ukraine to Central Europe stopped for several reasons, the idea of ​​building a direct branch from Russia to Germany caused a lot of heated debate.

Some argued that such a project, if implemented, would lead to a “collapse of the EU energy policy” (this, of course, if it existed in principle). According to the Lisbon Treaty of 2009, the approach in this area should be intergovernmental, and not supranational.

Nevertheless, despite the political and emotional components, after resolving all legal and technical issues related to laying the gas pipeline along the bottom of the Baltic Sea, in November 2011 the first line of the Nord Stream was put into operation, and in October 2012 - the second.

Given Germany’s growing demand for natural gas and its policy of phasing out nuclear power, a decision was made to expand the pipeline’s capacity. In the spring of 2017, agreements were signed to begin the construction of Nord Stream 2.

From the Russian side, negotiations were conducted by Gazprom through (its subsidiary. - RT ) Nord Stream 2 AG, from Europe - five energy companies, including Royal Dutch Shell, ENGIE and OMV, committed to finance 50% of the total cost of the project.

Fears around Nord Stream 2

However, Mark Twain's words were again confirmed: new disputes erupted over the topic of "insufficient market diversification" and "the geopolitical threat to the EU." The arguments of the project critics were very similar to those that sounded in 2005 and 2006. With one fundamental difference: this time everything was dictated by the position of North American shale gas in the global gas market.

Now, against the Nord Stream 2 project, unlike its predecessor 15 years earlier, they spoke out not only for geopolitical, historical and environmental reasons, but also in the context of the (principled. - RT ) question: what kind of gas is better to buy Europe: Russian, delivered by pipes, or American, delivered by tankers.

They began to think about switching to American shale gas in Europe since 2014, when anti-Russian sanctions were introduced. But American shale oil and gas became the top of the agenda only in 2017, with the advent of the Donald Trump administration.

Washington has repeatedly told its European partners about the need to build liquefied natural gas (LNG) terminals for its import from the United States. After the July 2018 NATO Summit, not a single meeting of the American side with the foreign ministers of the EU countries, also members of NATO, was complete without a discussion of this issue.

I spoke out against this idea, relying on economic considerations, primarily supply and demand.

Although this particular factor should be decisive when discussing the construction of such terminals, I understood that for those who started this discussion the political and emotional side of the issue was much more important. As a result, even more serious obstacles arose before the Nord Stream 2 project.

Effect COVID-19

Coronavirus fundamentally changed the market situation. As a result of global quarantine, oil and gas prices collapsed. It is difficult to find a geological exploration project that will still pay at least a little at such low prices (sometimes even negative ones, as it was fixed for a short time in mid-April).

If not for COVID-19, then, according to the forecasts presented in the World Energy Review 2019, the US share in the global growth in gas production by 2025 would be 40%.

According to the expectations of the International Energy Agency, under such a scenario, a return to ordinary natural gas would only occur from 2025 to 2040.

However, in the current conditions of instability and chaos in the market, the fracking industry is in a difficult position - simply because of the too high cost of production. American colleagues have warned for years that the US shale industry is waiting for a "hard landing." Mostly they were worried about the significant amount of debt accumulated by many companies during the period of rising gas prices and increasing demand for LNG.

Here is just one of many examples. Continental Resources has now halted most of its oil production at the North Dakota Bakken shale. In recent years, the company did not resort to hedging its production, which made it powerless against volatility in the oil market.

With respect to the many LNG terminals planned to be built in the territory from Croatia to Poland, the question has long been ripening whether they will justify themselves in the light of the current decline in gas prices and the resulting uncertainty with the supply of American gas. More and more fracking companies in America are declaring bankruptcy or are facing serious financial problems. Can one rely on shale gas and oil supplies from the US? And are the planned LNG terminals justified today from an economic point of view?

Green course at stake

With all this, it’s hard for me to understand how Europe can consider buying gas produced in a more polluting and environmentally harmful way than traditional gas production. How is this decision consistent with the European green course?

Many American fracking companies will not survive the current sharp (economic. - RT ) recession, and it makes sense to think about what the American oil industry looked like a hundred years ago. Then, from the drilling platforms, telegrams of the following contents came to the offices of companies: “There is good and bad news. Bad - no oil. Good gas too. ”

Associated gas - an undesirable by-product - has been burned for decades and continues to burn. This can lead to even greater costs. However, the current situation is forcing companies to cut costs like never before.

Today, planning future demand is even more difficult than in past decades. In conditions of complete uncertainty, there is only one indisputable fact: supply can always be created, but demand cannot. Economists from OPEC, IEA and all energy companies are trying to understand what's what. Force majeure - force majeure circumstances - brought down demand, as never before.

When discussing the supply of oil and gas and ways to transport them, emotions should be left aside. It should focus solely on supply and demand. In the conversation about the construction of pipelines, it is necessary to operate not by the fact that it will anger or please someone, but by the fact that it is economically profitable and there is a supply and demand for the goods that are delivered through it.

The author’s point of view may not coincide with the position of the publisher.