Polish Briefing 3 September, 2018 9:00 am   
Editorial staff

Polish Briefing: Gazprom is racing with US sanctions against Nord Stream 2

What goes on in Poland on the 3rd of September.

Gazprom is racing with US sanctions against Nord Stream 2

Gazprom’s Nord Stream 2 European partners have already lent EUR 2,4 billion to this project. The Russians need another one. With a threat of new US sanctions, they are considering various scenarios, including the exit of some European partners from the project. Gazprom wants to take money before any sanctions come into effect.

– The state-owned Gazprom group started the construction of Nord Stream 2 in July with a length of over 1200 kilometers and a capacity of 55 billion cubic meters annually – reports Reuters. The sole shareholder of Nord Stream 2 – Gazprom – finances half of the project’s estimated costs. Five European companies lend to the Russian company EUR 950 million each.

The partners have already spent half of the planned project costs totaling EUR 9,5 billion. However, in July this year, Washington called Europe a gas hostage in Moscow and threatened sanctions against companies taking part in the project. Reuters agency asked Gazprom about the risk of US sanctions that hang over the project and its lenders. The company Nord Stream AG 2 replied on behalf of the company, which only announced that the project is being carried out in accordance with the schedule. Reuters was sent back with questions about financing the project to Gazprom’s partners.

According to information from the end of June announced by Nord Stream AG 2, EUR 4,8 billion has already been invested in the implementation of Nord Stream 2, and investors are waiting for a guarantee for the remaining 4,5 billion euro from export credit agencies.

Corporations are considering different options

The Austrian OMV said it closely monitored the situation and expressed the hope that US sanctions would not harm EU companies. The German Uniper said it was involved in the further implementation of Nord Stream 2, but admitted that in the case of sanctions it would have to consider withdrawing from the project.

Race against time

– Investors should take into account the period of entry into force of sanctions, the introduction of which is possible by the President of the United States thanks to bills that are the subject of debates of the Senate, may be imposed on companies cooperating with Russian gas companies – said the director of research Vygon Consulting Maria Belova. – In the US, the average period from the adoption of the bill to its entry into force is 8-9 months. If by that time five European companies financing Nord Stream 2 make all investments, there will be no grounds for them to be subject to new sanctions – she noted.

A partner at Dentons Artem Zhavoronkov says that after the possible introduction of US sanctions, European companies will have at least six months to terminate their relations with Nord Stream 2. Contractors who will assemble the gas pipeline will also be at risk, as the law applies not only to investments but also providing services and technologies. – (…) Theoretically, it is possible to change contractors laying pipes. However, this may have a negative impact on the timing and costs of Nord Stream 2 – Belova believes.

However, Russian analysts with whom Reuters talked about believe that there are strong arguments against the imposition of sanctions – for example the risk of complicating Washington’s already difficult relations with the European Union, whose companies have already invested in the 2,4 billion euro project. – At the end of July, the Germans announced that they had received an initial guarantee from Washington that sanctions would not affect Nord Stream 2 – Reuters said.

Will Gazprom pay alone?

Russian analysts are convinced that even if European partners can not help Gazprom to continue financing, it will deal with this problem thanks to good financial results and growing profits. – What’s more, Gazprom is not covered by sanctions and can take loans on foreign markets – said Andrei Polishchuk from Raiffeisen. It is worth noting, however, that this is the third gas megaprojekt implemented by Gazprom after Turkish Stream and Strengh of Siberia, which may put considerable pressure on the Russian company’s finances.

On August 31, Gazprom announced that it was withholding certain debt instruments, but stressed that it did not suspend the loan program and still has access to private loans. – Gazprom has suspended its external loans program this year due to the growing legal dispute with Naftogaz in Ukraine regarding gas supplies – said the banking sources this month. The London court in June froze the company’s assets in the United Kingdom at the request of Naftogaz. – The British court will conduct hearings on 4-5 September regarding Naftogaz’s moves to freeze Gazprom’s assets – he told the representatives of the Russian company during Friday’s conference talks.

The construction of the gas pipeline has not yet been agreed with Denmark. Gazprom is waiting for the approval of Copenhagen for construction in its territorial waters. It also considers the alternative, that is, the trail through the exclusive economic zone. It argues that there will be no increase in project costs, although contractors say it will be the opposite.