Polish objections leave Gazprom's Nord Stream 2 gas pipeline plans in doubt

Polish objections leave Gazprom's Nord Stream 2 gas pipeline plans in doubt
By bne IntelliNews August 15, 2016

Gazprom and its European partners' plan to develop the Nord Stream 2 gas pipeline have been dealt a blow because of objections by Poland's regulator UOKiK, leaving the project in doubt.

Gazprom and its European partners – Gazprom (50%), E.ON (10%), OMV (10%), Shell (10%),Wintershall (10%) and ENGIE (10%) – were intending to add a second parallel gas pipeline to Nord Stream 1 that runs from gasfields in northwest Russia to Germany under the Baltic Sea, bypassing the traditional transit route through Ukraine. 

However, Poland was a vocal opponent of Nord Stream and this planned second phase, as like Ukraine it misses out on transit fees and cheaper gas deals as a result. And on August 12, the application with UOKiK to form a joint venture to build Nord Stream 2 was withdrawn in the teeth of the opposition from Warsaw, leaving Gazprom as the project’s sole operator.

However, all the companies have reiterated their strong commitment to the project, and Steffen Ebert, a spokesman for Nord Stream 2, which is wholly owned by Gazprom, told the Wall Street Journal that, “It has no impact... We are still working and we are on track.”

“Infrastructure projects of this scale and involving a number of countries carry significant political risks. The potential involvement of international partners could have decreased such risks, we think, and might also have improved construction efficiency and share financing (Gazprom CEO Alexei Miller previously estimated total capex at €10bn). We still think that Gazprom will try to attract project financing for Nord Stream 2, if the project finally proceeds. However, it is not particularly clear what the next step is, or the timeline for the project,” VTB Capital said in a note.

The combined capacity of Nord Stream 2 is projected at 55bn cubic metres per year (cm/y). The pipeline was planned to come into operation in the fourth quarter of 2019.

The original intention was to attract bank funding to cover about 70% of the cost, with the other 30% financed proportionately by Gazprom and its European partners. This would have been a scheme similar to the one that financed the original Nord Stream project. However, with the Polish objection making it difficult for the other European partners to participate, Gazprom would have to foot the bill on its own, something it cannot afford at the moment.

“With Gazprom left solely in charge of the construction company, it may find it more difficult to raise outside financing. This could leave it responsible for covering a larger share of the costs, at a time when it is already burdened with the Power of Siberia pipeline to China and the resumed Turkish Stream project,” Alex Fak, an analyst with Sberbank CIB, said in a note.