(Bloomberg) — As pressure mounts on Angela Merkel to drop support for a controversial gas pipeline caught up in a diplomatic spat, analysts question whether Europe will actually need the fuel — at least for the next few years.
While the Nord Stream 2 gas pipeline is halted and tensions between Germany and Russia have escalated since the poisoning of an opposition lawmaker, Europe is flooded with cheap gas and demand is likely to remain stable.
“I don’t think it impacts the gas markets, even if the project is scrapped,” said Christoph Merkel, managing director of Merkel Energy consultancy.
Russia and Germany say Nord Stream 2 is a vital supply line that will replace declining European production. But for years, the biggest glut the world has ever seen has sent fuel to the continent through other pipelines and on tankers from as far away as the U.S. and Qatar. European benchmark prices have more than halved since the peak in 2018.
When Nord Stream 2 was agreed in 2015, natural gas was widely seen as the fuel that would replace coal and sit along side wind and solar power in Europe’s energy mix. Since then, renewable power costs have plummeted, weakening the case for any fossil fuels at all. Natural gas demand is estimated to stay flat for at least the next five years, according to the International Energy Agency.
At the same time, there is growing environmental opposition against building new gas infrastructure especially when Europe is aiming to be climate neutral by 2050.
That makes longer-term demand dynamics hard to predict. But further out, Germany would probably have to make up for any delay or cancellation of Nord Stream by investing more in liquefied natural gas terminal capacities.
“Looking at 2030, I see a gas supply gap in Europe as domestic production will continue to decline. The continent will need to import more gas, either from Russia or LNG producers,” said Julien Hoarau, gas market analyst at Engie EnergyScan.
Weighing on any decision in Berlin now is also the issue of sunk costs in a nearly finished project with a total investment of 9.5 billion euros ($11.2 billion).
Originally set for completion in 2019, Russia’s Gazprom PJSC in June said it would be able to complete the project by late this year or early 2021. A spokesperson for Nord Stream 2 said it is looking for solutions to lay the remaining 6% of the pipe, and declined to comment on political debates.
The almost completed 1,230-kilometer (764-mile) gas pipeline would double the capacity of the existing undersea route from Russian fields to Europe. Its construction sparked fears in the U.S. and beyond that it would give Russia leverage over Germany and other allies.
Germany is among the world’s biggest natural gas importers according according to the EIA. The country buys the fuel mainly from Russia, Norway and the Netherlands via pipelines. Natural gas made up 25% of Germany’s total primary energy consumption in 2019.
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