Russia forges on with Europe gas project despite US sanctions threat

Andrea PALASCIANO
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The giant Bovanenkovo gas field will feed the Nord Stream 2, an energy link between Russia and Germany that has come in for US criticism

Deep in the Russian Arctic anticipation runs high ahead of the launch of a natural gas pipeline that has emerged as a source of tensions pitting Moscow and Berlin against Washington.

Gas sourced from the giant Bovanenkovo field on the remote Yamal Peninsula far above the Arctic Circle will feed the Nord Stream 2, a multi-billion-euro energy link between Russia and Germany.

Critics of the Gazprom-led project -- in particular Washington and Kiev -- say the pipeline aims to increase Europe's reliance on Russian gas and isolate Ukraine, which it bypasses.

US Secretary of Energy Rick Perry said in the Ukrainian capital Kiev this week that Washington was moving towards imposing restrictions on the companies involved in the project.

The Nord Stream 2 consortium and supporters of the project say the 1,230-kilometre (765-mile) pipeline that runs under the Baltic Sea will help secure Europe's rising gas needs at lower prices.

"We have all these political discussions saying it's a political project," Henning Kothe, chief project officer at Nord Stream 2, told reporters during a tour of the field on Tuesday.

But, he added, the shortest way for gas to reach Europe was "via Nord Stream 2, which is 2,000 kilometres shorter than the existing route through Ukraine.

"That is for me a fact and not politics," he said.

Half of the 9.5-billion-euro ($10.6-billion) project is financed by Gazprom, with the rest covered by its European partners: Germany's Wintershall and Uniper, Anglo-Dutch Shell, France's Engie and Austria's OMV.

The consortium insists that Ukraine will retain its role as a transit country.

The project had been due to be launched in late 2019, but Gazprom said Sunday it could go online in 2020.

Denmark has still not issued a permit for the pipeline to cross its waters.

- 'Unfair competition' -

US President Donald Trump charged in angry tweets last year that the project made Germany a "captive" of President Vladimir Putin's Russia.

Speaking after talks with Austrian President Alexander van der Bellen last week, Putin accused Washington of "unfair competition" and using political pressure to sideline a competitor.

"Our partners know that their product is more expensive and its quality is by no means better," Putin said, referring to the United States.

The Austrian president said for his part that his country had no intention to quit the project.

"US liquified gas is considerably more expensive than our current sources," he told reporters. "So there's no economic reason whatsoever to change our position."

The field's gas reserves are estimated at 4.9 trillion cubic metres, and plans are under way to increase its capacity to 140 billion cubic metres (bcm) a year from 115 bcm now.

More than a thousand kilometres of pipes have already been laid in the Baltic Sea.

Pipelay vessels are working to install eight kilometres of pipelines a day.

The twin pipeline system consists of two 1,230-kilometres-long pipelines.

- 'Nightmare scenario' -

Pushing back the launch date could create considerable difficulties.

Most of Russia's gas destined for Europe passes through Ukraine.

But the transit agreement between Kiev and Moscow expires at the end of the year.

With the two countries at loggerheads over Crimea, Ukraine's territory annexed by Russia, and a separatist conflict, Moscow and Kiev have struggled to agree on the deal's extension.

Dmitry Khandoga, deputy head of Gazprom's external economic affairs department, said ending the year without completing Nord Stream 2 and without a transit deal with Ukraine would be a "nightmare scenario".

The threat of US sanctions also looms large.

US Secretary of Energy Perry said the planned bill would have "very, very onerous restrictions on companies that continue to do business with Nord Stream 2".

Kothe downplayed the risks, saying that none of the partners had left the project.

Some experts say the possible sanctions would hardly affect the project but will put the European Union on a direct collision course with the United States.

Elina Ribakova, deputy chief economist at the Washington-based Institute of International Finance, said it was too late to stop the construction so US Congress felt it can only call for sanctions.

"It is a highly controversial issue for Germany and therefore particularly risky for US-German relations," she said on Twitter.