The legitimacy of the extension of the Nord Stream 2 gas pipeline between Russia and Germany is being seriously undermined by regulatory and political headwinds, writes Jack Sharples.
The ruling of the Polish anti-monopoly watchdog, the UOKiK (Urząd Ochrony Konkurencji I Konsumentów), and the subsequent decision of the Nord Stream 2 consortium companies to withdraw their application for permission to formally form the joint venture, will have a significant impact on the project.
In terms of funding, this raises two particular problems.
Firstly, Nord Stream 2 will lose the direct financial contributions of the non-Gazprom consortium members. Secondly, the project now looks riskier in terms of attracting loans for project financing. A consortium consisting of Gazprom plus five reputable European energy companies is more appealing to lenders than Gazprom alone.
There is also the loss of political support. The European consortium members lobbied for Nord Stream 2 in their home countries: Wintershall and Uniper in Germany, Engie in France, OMV in Austria, and Shell in the UK and the Netherlands.
Now that their joint venture participation is blocked, it will be more difficult for them to lobby effectively in support of the project.
The loss of both financial and political support (in the form of lobbying) from its partners does endanger the project. Financially, Gazprom is theoretically committed to three huge projects simultaneously: Nord Stream 2, Turkish Stream, and the Power of Siberia to China.
It will be very difficult to realise all three projects, especially in the current price environment.
Even if Gazprom finds the financial resources to complete the project alone, would Gazprom be allowed to operate the pipeline alone, at full capacity?
In the current context of debates over third party access in relation to Nord Stream and its onshore sections in Germany, and the fact that Gazprom is already under the spotlight in relation to the EU anti-monopoly investigation, the UOKiK ruling is another signal undermining the legitimacy of the project.