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MarketScreener Homepage  >  Equities  >  MOSCOW INTERBANK CURRENCY EXCHANGE  >  Gazprom PAO    GAZP   RU0007661625


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Russia's Gas Pipeline to Germany Clears Major Hurdle

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10/30/2019 | 02:03pm EST

By Emre Peker

BRUSSELS -- Russia cleared a major hurdle in building a gas pipeline to Germany that President Trump has fiercely opposed after Denmark on Wednesday granted the final construction permits.

Copenhagen's authorization allows Nord Stream 2 AG, a subsidiary of Russia's state-owned PAO Gazprom, to complete the last section of the Baltic Sea link.

"Denmark is obliged to allow the construction of transit pipelines," the Danish Energy Agency said, citing the United Nations Convention on the Law of the Sea.

The decision follows Mr. Trump's repeated attacks on the project, which is backed by European energy companies including Royal Dutch Shell PLC. The president said the pipeline would let the Kremlin to "totally" control Germany and be a "very bad thing for NATO."

Denmark, a NATO ally that opposes the pipeline, over the last three years exhausted all options to block it. Copenhagen lobbied European Union partners to halt the project, while attempting to delay construction by raising national-security and environmental concerns.

Now, sanctions by Mr. Trump would be the only way to halt Nord Stream 2.

"The Danish decision will no question add some juice to trying to get this done sooner rather than later," said a Congressional aide familiar with sanctions deliberations in Washington.

But chances of rapid U.S. action are slim, despite bipartisan opposition to Nord Stream 2 since the Obama administration.

Congress empowered Mr. Trump to impose broad sanctions against the pipeline project in 2017 with a bill aimed at punishing Russia for its interference in elections the prior year. Despite his repeated critiques of the pipeline and Europe's reliance on Russian gas, however, the president hasn't used those powers.

U.S. lawmakers could force Mr. Trump's hand by appending measures against Nord Stream 2 to the defense-spending bill. But that must-pass legislation is stalled over Democrats' opposition to the president's demand for funding to build a wall on the Mexican border. A stand-alone Russia sanctions bill, meanwhile, is unlikely to muster a veto-proof majority in Congress.

At stake is Russia's ability to bypass Eastern European transit routes through Ukraine. Nord Stream 2 will enable Gazprom to pipe 110 billion cubic meters of gas annually to Germany -- double the current amount and equal to roughly 60% of Moscow's annual exports to the European Union, its biggest customer.

Russia's gas-transit agreement with Ukraine expires at the end of the year. The ability to reach European markets directly would strengthen Moscow's hand in ongoing negotiations with Kyiv.

This week, a fourth round of trilateral talks hosted by the EU failed to yield results after Russia rejected the bloc's Ukraine-backed proposals for a long-term contract aligned with European regulations.

"Time is flying," European Commission Vice President Maros Sefcovic, who leads the discussions for the EU, said Monday. "We feel where solutions lie but we need a political will."

Moscow, however, isn't signaling any urgency. Russian Energy Minister Alexander Novak said he discussed Nord Stream 2 during a bilateral meeting with Mr. Sefcovic, reiterating that the pipeline is a commercial project in Europe's interest.

The North Atlantic Treaty Organization and Eastern European members of the EU have long warned against Nord Stream 2.

"Given Russia's use of energy as part of its hybrid threats towards Ukraine, it would seem that NATO allies, many of which are customers of Russian gas and oil, might have a lot to discuss," the alliance's energy security analyst said.

After recognizing that it can't block Nord Stream 2, and with pressure from countries led by Poland and Denmark, the EU revamped its gas regulations to extend its rules to pipelines outside the bloc.

Under the new EU regulations, Nord Stream 2 would either have to spin off from Gazprom and grant access to other gas providers, or receive an exemption from the German regulator to operate as a unit of the Russian gas-exporting monopoly. Berlin has staunchly defended the pipeline as a commercial project, actively seeking to exclude the EU from the decision-making process.

Gazprom's subsidiary has challenged the revised EU regulations in court and is racing to complete the pipeline by year-end.

"Nord Stream 2 is working toward the safe and compliant completion of the project in the coming months," a spokesperson for the Switzerland-based pipeline company said.

Write to Emre Peker at emre.peker@wsj.com

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