U.S.-German Deal on Nord Stream - 2 is a win for Gazprom

RUSSIA ENERGY / FINANCE - In Brief 26 Jul 2021 by Marcel Salikhov

The agreement between the US and Germany to allow the completion of the Nord Stream-2 (NS2) gas pipeline looks like a victory for the Russian side. The agreement also weakens Ukraine's negotiating position when concluding a new transit agreement for 2024. The US and Germany agree that the American side will stop opposing the completion and will not impose sanctions against the NS2 gas pipeline and its contractors. On the other hand, Germany agrees to support the introduction of sanctions against Russia if it uses an "energy weapon". Furthermore, both countries will create a special fund to support energy projects in Ukraine.

Weakening of the negotiating position of Ukraine

Completion of NS2 means understandable economic consequences for Ukraine. In 2020, the volume of Russian gas transit through Ukraine amounted to 55.8 bcm, although Gazprom was obliged to pay for booking a capacity of 65 bcm under the current transit agreement. Overall, Ukraine received $2.1 billion of transit fees. Transit revenues fluctuated at $ 2.6-2.7 bln per annum in 2018-219.

Over the last months, the Ukrainian authorities have stated that the launch of the NS2 would mean "zeroing" of transit, the loss of related income, and a threat to the country's security. Therefore, the Western counties must either "stop" the project or "compensate" for the economic losses to the Ukrainian side. However, the agreement between the US and Germany provides for only modest compensation. It is about creating a special fund that will invest in energy projects in Ukraine. Its volume will reach $ 1 billion, but it will be formed mainly at the expense o...

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