BOFIT Viikkokatsaus / BOFIT Weekly 2021/39

Construction work on the Nord Stream 2 gas pipeline, which runs along the floor of the Baltic Sea from Russia to Germany, was completed in mid-September. The pipeline builder, Nord Stream 2 AG, is owned by Gazprom. The company reports that the pipeline should be ready for commissioning by the end of this year. In addition to the technical finalisations, however, commissioning will depend on EU energy market regulators. In July, the Court of Justice of the European Union ruled that Gazprom could only use half of the pipeline’s capacity. The capacity decision also applies to the Nord Stream 1 pipeline, completed in 2011–2012, which parallels the new Nord Stream 2 pipeline. The commissioning of the pipeline has aroused considerable discussion in recent weeks as natural gas prices soared to historical highs on European gas-trading exchanges.

The price rise reflects a resurgence of global demand. The volume of pipeline gas imports to EU countries has returned to pre-pandemic levels, while imports of liquefied natural gas (LNG) have not. At the same time, gas output in EU countries continues to decline. The gap has been made up with gas reserves in storage, which last summer fell to exceptionally low levels. Higher gas prices boost Russia’s export earnings as increasingly the pricing of exported gas, in accordance with EU rulings, is tied to gas market prices.

The price of natural gas has soared on European natural gas exchanges to levels well above prices in Asian markets

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Sources: World Bank and BOFIT.


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