I think you forget that Gazprom is now wildly unpopular in Europe. That gas will be buyers' last choice, bought only if there's no other option. What's the value of a pipeline if the only product it carries is that unpopular?
Which is the case today, but the value of an investment like this pipeline is based on a forecast of several decades. On that timescale, the pipeline competes with every kind of power plant.
You think, perhaps, that I've overlooked that Russia is the only viable source for the gas now?
This pipeline has an expected lifetime of around 50 years. The availability or non-availability of other power sources this year doesn't matter very much for the valuation of the pipeline. My assumption is that the current political situation will lead to a stronger push towards other energy sources, chiefly renewables but also LNG. And as a consequence, that this will depress the use of the pipeline for at least 45 of its expected 50-year lifetime. With obvious implications for its present valuation.
While the other responses to your comment have given some aspects that seem applicable to me. I'd like to add the aspect of marketing. There is most likely some subsidiary of gazprom that sells Gas as more clean than coal approach and hides it's ownership to those that don't do their homework.
Besides there being no real alternative to russian gas in central Europe most people will not research who is behind the name on the bill.
I thought about that too, and decided that it's not significant.
That pipeline ends on the north coast of Germany. Its customers will have to be in 10-20 countries surrounding Germany, and energy sources are long-term decisions made by boards of directors rather than mid-level managers. Consider the next five years. Which energy company board in those countries is going to discuss two suggested investment plans, one that involves Gazprom and one that involves anything else, and pick Gazprom over an alternative?
Perhaps, my current opinion is: Many people don't care enough about politics at all to consider it a factor and maybe that changes with the situation in Ukraine but I'm not convinced. Will politicians put pressure on the companies, maybe more likely. In which case you are still right.
Yeah you can bet that the 8000$ per m3 gas delivered from Qatar via the United States is going to become very popular, after Gasprom is no longer able to receive payments from its customer, and subsequently stops all of its supply to Europe. Well, this new $8000 gas will surely have molecules of freedom in it, unlike that authoritarian Putin's gas. But for how long will Europeans be willing to put up with prices like this?
If I understand you correctly, your opinion is that ① LNG will be much more expensive than Russian gas in the coming decades and ② Europe cannot reduce its gas usage enough to make that extra cost politically acceptable. Is that correct? If so, my answer to "how long" is "enough to depress the value of that pipeline considerably from its valuation as of two weeks ago".
LNG being much more expensive is pretty obvious - transportation costs are something like 90% of the final price. Pipelines are much more effective means of transportation for such things - build once, use for decades, at almost 0 marginal cost.
Reducing gas usage is entirely different topic, it would require to either: invest heavily in nuclear or: reopening of coal-powered plants.
Belgium (my country) imports about 400% of its domestic use in LNG, to then sell it to neighbouring countries via pipelines. Doesn't make sense if LNG was too expensive.
There were several partners involved in financing, for instance Shell.
>squeeze out the UK/US partner?
Quite the opposite. Gazprom is the only shareholder. That means they'll be the lowest on the repayment schedule. I assume the financing partners have some form of debt. Therefore, the most likely outcome is that the pipeline is auctioned off, and the revenues of that go directly to Shell etc, and Gazprom gets nothing. The various partners may also offer Gazprom a fixed sum right now for their shares.
It's worth noting that the Swiss company itself, because it is owned by Gazprom, is falling under sanctions tomorrow. So, this isn't a result of people not wanting to by Russian gas as much as no one wants (or will be allowed) to have transactions with the pipeline after tomorrow.
I don't think that's the main reason for the US to be opposing it though.
American LNG is already allocated 100% at this time. Besides, you need very expensive port infrastructure as well to support it, not many EU ports have that capability. If they are looking for new energy sources, it will need something more efficient. Can't rely on LNG.
It depends very much on how the situation ends, and how quickly. A simple return to status quo ante bellum seems implausible now.
Russia becoming a hermit kingdom cut off from Western trade for a significant time seems a distinct possibility. Germany has already announced they plan to eliminate their dependence on fossil fuels for electricity by 2035 [1] and to increase imports from the USA until then. Europe was already moving away from fossil fuels for climate reasons. The war gives a security justification for accelerating that course even if it impacts quality of life, the economy, or even climate goals. [2] European energy independence just became a primary goal of unlikely to change even if the immediate tensions ease.
Assuming this materializes and relations allow, the pipeline may end up mostly exporting via European ports. So you're right it'll probably get used one way or another, eventually.
> It seems like the pipeline will be put into use once this business with Russia is over.
Imo, which is without any particular info of the industry: It will probably be put to use, however perhaps not to it's full capacity. Germany has high energy prices, which there is no indication of going down in the forseable future. So it seems particularly unlikely it would not be used at all. Germany is trying to reduce it's dependency on russian gas (for example via LNG). But Germany opting out of coal and nuclear fission power - energy prices won't, imo, go down.
You say "once this business with Russia is over". Current events from my German perspective imply they won't be over no matter what outcome... things just change going forward.
If Germany remains on the no nuclear front then France will build more nuclear power on the boarder that Germany will buy at a premium. Dependency on russian gas will go down no matter what, the next winter might be financially tough though. In that regard "selling" the nord stream pipeline via insolvency now or later at declining usage - it's valuation I can only guess at.
From a non-financial position the pipeline gives certain power as long as Germany has a dependency on russian gas -> it's worth might be different to Russia than just viewed economically.
In another post I mentioned that this article says "considers" insolvency. Therefore it might just be political message for now or a leak of something companies with financial difficulties are legally required to do... so all this is honestly just a thought experiment.
It takes in the order of 20 years to build new nuclear power plants.
By then fission will be stone age from an economic point of view, PV and wind will be much cheaper than they are now, electric vehicles can serve as batteries on the grid, and a lot of infrastructure will have been converted from gas to hydrogen.
In other words, it makes no sense to think about fission at this point.
The article states the pipeline is indirectly owned by gazprom. Which for the sake of argument I'll assume Russia/Putin has a certain amount of control over.
Filing for insolvency is a legal requirement under certain financial situations.
Reading the article it's unclear to me whether this is a political message or an attempt of the company to comply with the law. As it's just "considerung" insolvency it might be a political message regarding Russian willingness to provide gas going forward.
Providing secure gas via Nordstream One, Jamal Europe/Jamal, Sojus/Transgas, albeit the mess:
Let's talk, everything could be fine between us.
Showing the Nuke card:
'Fuck off, this is not your business.'
Carrot.
Stick.
You want something, I want something.
Oh, and of course sow a fair amount of discord between Western allies.
The Russians are waiting for the first Germans to say:
"Look, they keep their word.
Even if they are currently raping Ukraine, okay.
But, then again, you know she dressed provocatively."
Wait until Germany has taken a few hundred thousand Ukrainian refugees and faces an inflation around five to seven percent.
Not to forget, this crisis will get cold, governments in the West will change and you have to get along again.
Who knows who handles the White House in a few years.
Wasn't so bad, was it, luv?
Did you know, showing the Nuke stick early (Escalate to De-Escalate) is said to be an invention of a certain meteoric risen Russian politician in his time as Secretary of the Russian National Security Council around 2000?
> sow a fair amount of discord between Western allies
From my outsiders perspective, I have never seen Europe so unified. Putin has inspired an astonishing amount of camaraderie amongst his western neighbors.
That's what I don't get about the whole situation. Putin always seemed like an intelligent man, that understood Russia's strengths and weaknesses. I would've thought he would try to divide the EU significantly before invading Ukraine.
Whether or not he takes Ukraine is pretty much irrelevant now. They will have the equivalent of a warmonger penalty for at least a decade. I wonder if there is any truth to the rumor that he is sick, that's the only way I see that the whole puzzle fits.
When Finland starts saying "we really should consider this NATO thing", anti-war Germany says "we need lots more tanks!" and even the Swiss say "we are neutral to everyone but you" (all in one week!!!) the people around him MUST realize just how badly Putin has fucked up.
My guess is that Putin just way overplayed his hand. A decade or two of his tricks to undermine NATO and the West got him overconfident and he thought he the fundamentals of NATO were weaker than they are.
Dictators have a tendency to surround themselves with yes-men over time as well, that's probably playing into this some.
Now I'm sure he realizes he miscalculated, but it's unclear how to stand down.
I'm not sure I understand the meaning of your response particularly but I'll try to give my perspective.
Unless the nuclear war is propagated a lot more in the media, I don't believe most Germans will take it seriously... for now. We currently have no nuclear weapons so from my perspective it's out of our hands anyway. Just because Putin mentioned it doesn't mean Germans see it as realistic. I can obviously only speak for myself but noone in my surrounding has mentioned it as anything more than political leverage.
Regarding sewing discord between western allies: The nordstream pipeline has been a point of contention between western allies and quite controversal in inner german politics. I don't see that changing, if/when the pipeline is used there will be outcries from allies and within Germany. Economically the choice might be made anyway because the energy prices in Germany are just extremely high and not all gas usage can be replaced by other sources.
Regarding refugees, it's hard for me to estimate the impact. This is honestly something i feel i should research a bit. My opinion is that short term such changes in population can have unforseen effects. Long term I believe it helps Germany with it's declining population. All the arguments regarding culture etc. don't mean much to me personally as all that changes over time anyway and clinging to some notion of culture tied to a geographic location is presumptuous. If you want a certain culture in your life.. then live that way.
Yes, but you probably aren't Putin, you probably aren't Russian and you are probably powerless in a geostrategical or any other meaningfull sense.
Like most people on this planet.
Which makes a big difference for thinking.
And as I have already indicated, a method to madness implies above all .... Madness.
And a system that selects a certain amount of madness as a means to national power.
His frame of reference is obviously quite different from yours.
And so, probably, is that of his close environment in Russia's power apparatus.
That means, they could have stopped this beforehand if they wouldn't have the same method of thinking.
Beside, that 'Escalate to De-Escalate' thing which Putin may have introduced into the Russian discussion of its nuclear doctrine, involves the use, not just the threat,of a tactical nuclear weapon to stop an escalation of conventional war or if things go too badly.
Just small enough that the Russian apparatus does not believe in nuclear retaliation by other nations.
A surprisingly last-minute test of a small tactical nuclear bomb, that sort of thing.
Or one in the atmosphere above the baltic sea, who knows.
This concept does not even require an immediate threat to Russian territory from enemy forces, i.e., their invasion.
Which is their official doctrin for the use of nuclear weapons.
In short, it doesn't matter what you think, nor what I think.
It matters what Putin and his cronies think.
And obviously, nobody really knows what they think or are capable of.
And what they even care to consider as a reality.
There's something I don't understand about the Russian actions. They knew sanctions were coming, they clearly prepared years ahead for this war, maybe since Crimea. They gathered enough reserves, and built closer ties with China.
At the same time, they invested so much money on this pipeline, and attacked even before it was operational. Now this "Swiss" puppet company, which is also owned by Russia, is folding like it was caught by surprise.
They probabaly didn't expect this project to completely die down like I did. I think they expected there to be sanctions similar to Crimea, most of which were weak and/or overturned eventually.
And by "they" I mean Putin, because I'm pretty sure anybody with half a brain cell should've known that invading a country after a global pandemic was bound to get some backlash from the rest of the world.
They hoped that it wouldn't come to war, and were willing to risk the pipeline if it did. In the grand scheme, Russian national security goals trumped the economic factors.
There is an alternative narrative, which is possible but I don't believe:
Putin is simply evil and/or crazy, and therefor completely irrational.
Occam’s razor argument could also be that he’s arrogant and tends to underestimate his enemies. In which case this is all perfectly “rational”. Russia is only a superpower in military might so he chose to use that tool. He thought the sissies in Ukraine wouldn’t fight and the dorks in EU would at most send a sternly worded letter.
It’s probably very very difficult to internalize that half the globe would love to see you dead so various delusions take that truths place instead.
As can be seen, Russian military is a joke, because of corruption. Russia is deeply corrupt and that made it's military under-bugeted, a lot of the allocated budget went into the pockets of higher-ups. The only way Russia is feared it's because of its nukes.
There were no threats to Russian national security. Who would attack a country with nuclear warheads?
This invasion is only to strenghten his internal position as there was more and more oppositon. "Saving" their Slav brothers wouldv'e given him enough time till death.
Up until last week Germany showed no signs of seriously opposing Russia, they spent nothing on their military, they made their Russian oil essential to their energy policy (to the exclusion of nuclear) and senior former politicians lobbied for Russia.
It was perfectly reasonable for Russia to think Germany couldn’t afford to dump NS2 (Russia had been deliberately running down reserves for 6months). The problem is that Russia’s actions galvanised Europe in a unique way. Suddenly Germany is more sceptical of the Russians than the Brits are, and the brits have very little on the line in comparison.
While there is plenty to criticize about our previous strategic decisions in this area, no gas has ever flown through NS2. There's a lot of bad faith arguments going around here.
NS2 was controversial in Germany from the start, it was a bad idea politically because it weakened the position of the eastern european states. But it was not the bogeyman than many made it out to be.
Germany needs gas for heating, and heating is not optional. Heating is also expensive, and making it more expensive for strategic reasons is a very hard thing to sell.
On Twitter he made it very clear that he didn't believe the US that Russia was planning on attacking Ukraine, and did a lot of chastising of the media for trying to whip things up. Up until a speech by Biden around the 18th of February, after which he wasn't as sure.
Here is an interesting fact about the Nord Stream AG CEO:
“He is a former officer in the Stasi.” and “an ally of Russian President Vladimir Putin”
Funny how most of these former communist secret service agents are all involved in shady business. This is common to all former communist countries, east germany included. The former soviet aligned block somehow generated a lot of these types and i fail to understand why. Is it because communist suppression regimes relied on criminals in their early stages, and as such, they bubbled up into leadership positions? Or is it simply that they had access to information regular people didnt? But still I dont understand why they chose a shady / criminal path.
People willing to take initiative and sieze control of state property by whatever means they could, prospered during the chaos of the USSR's breakup. They were often cliques within the Soviet power system, KGB, Communist party officials, both in a position to see where things were going and with institutional access.
64 comments
[ 3.1 ms ] story [ 158 ms ] threadWhich is the case.
> What's the value of a pipeline if the only product it carries is that unpopular?
The value is in having options.
This pipeline has an expected lifetime of around 50 years. The availability or non-availability of other power sources this year doesn't matter very much for the valuation of the pipeline. My assumption is that the current political situation will lead to a stronger push towards other energy sources, chiefly renewables but also LNG. And as a consequence, that this will depress the use of the pipeline for at least 45 of its expected 50-year lifetime. With obvious implications for its present valuation.
That pipeline ends on the north coast of Germany. Its customers will have to be in 10-20 countries surrounding Germany, and energy sources are long-term decisions made by boards of directors rather than mid-level managers. Consider the next five years. Which energy company board in those countries is going to discuss two suggested investment plans, one that involves Gazprom and one that involves anything else, and pick Gazprom over an alternative?
Too many resources come from non democratic countries with a lack of human rights.
Reducing gas usage is entirely different topic, it would require to either: invest heavily in nuclear or: reopening of coal-powered plants.
LNG is that masses will be expensive and environmental harmful because of the transportation by ship.
A few middlemen and all is well.
That or when enough time has passed after the war.
We don't have a problem with Saudi Arabian oil, no matter what happened with Kashoggi, Yemen or Raif Badawi.
>squeeze out the UK/US partner?
Quite the opposite. Gazprom is the only shareholder. That means they'll be the lowest on the repayment schedule. I assume the financing partners have some form of debt. Therefore, the most likely outcome is that the pipeline is auctioned off, and the revenues of that go directly to Shell etc, and Gazprom gets nothing. The various partners may also offer Gazprom a fixed sum right now for their shares.
It's worth noting that the Swiss company itself, because it is owned by Gazprom, is falling under sanctions tomorrow. So, this isn't a result of people not wanting to by Russian gas as much as no one wants (or will be allowed) to have transactions with the pipeline after tomorrow.
The pipeline is built and presumably functional. It seems like the pipeline will be put into use once this business with Russia is over.
Then the US decided that it didn't want to be in the energy exporting business.
Energy supply and demand isn't very elastic, but nothing's absolute, right? You could guess that without any specific knowledge and find the articles.
I'm seeing headlines like "In Extreme LNG Market, Cheniere Finds More LNG to Sell and Dramatically Boosts 2022 Estimates Again"
P.S. the following says "Train 6" (liquefaction units) came online February 4, 2022:
https://www.cheniere.com/where-we-work/sabine-pass
Russia becoming a hermit kingdom cut off from Western trade for a significant time seems a distinct possibility. Germany has already announced they plan to eliminate their dependence on fossil fuels for electricity by 2035 [1] and to increase imports from the USA until then. Europe was already moving away from fossil fuels for climate reasons. The war gives a security justification for accelerating that course even if it impacts quality of life, the economy, or even climate goals. [2] European energy independence just became a primary goal of unlikely to change even if the immediate tensions ease.
Assuming this materializes and relations allow, the pipeline may end up mostly exporting via European ports. So you're right it'll probably get used one way or another, eventually.
[1] https://www.reuters.com/business/sustainable-business/german...
[2] https://www.reuters.com/business/energy/germany-step-up-plan...
Imo, which is without any particular info of the industry: It will probably be put to use, however perhaps not to it's full capacity. Germany has high energy prices, which there is no indication of going down in the forseable future. So it seems particularly unlikely it would not be used at all. Germany is trying to reduce it's dependency on russian gas (for example via LNG). But Germany opting out of coal and nuclear fission power - energy prices won't, imo, go down.
You say "once this business with Russia is over". Current events from my German perspective imply they won't be over no matter what outcome... things just change going forward.
If Germany remains on the no nuclear front then France will build more nuclear power on the boarder that Germany will buy at a premium. Dependency on russian gas will go down no matter what, the next winter might be financially tough though. In that regard "selling" the nord stream pipeline via insolvency now or later at declining usage - it's valuation I can only guess at.
From a non-financial position the pipeline gives certain power as long as Germany has a dependency on russian gas -> it's worth might be different to Russia than just viewed economically.
In another post I mentioned that this article says "considers" insolvency. Therefore it might just be political message for now or a leak of something companies with financial difficulties are legally required to do... so all this is honestly just a thought experiment.
By then fission will be stone age from an economic point of view, PV and wind will be much cheaper than they are now, electric vehicles can serve as batteries on the grid, and a lot of infrastructure will have been converted from gas to hydrogen.
In other words, it makes no sense to think about fission at this point.
The article states the pipeline is indirectly owned by gazprom. Which for the sake of argument I'll assume Russia/Putin has a certain amount of control over. Filing for insolvency is a legal requirement under certain financial situations. Reading the article it's unclear to me whether this is a political message or an attempt of the company to comply with the law. As it's just "considerung" insolvency it might be a political message regarding Russian willingness to provide gas going forward.
Imho a very interesting development.
Showing the Nuke card: 'Fuck off, this is not your business.'
Carrot.
Stick.
You want something, I want something.
Oh, and of course sow a fair amount of discord between Western allies. The Russians are waiting for the first Germans to say: "Look, they keep their word. Even if they are currently raping Ukraine, okay. But, then again, you know she dressed provocatively."
Wait until Germany has taken a few hundred thousand Ukrainian refugees and faces an inflation around five to seven percent.
Not to forget, this crisis will get cold, governments in the West will change and you have to get along again. Who knows who handles the White House in a few years.
Wasn't so bad, was it, luv?
Did you know, showing the Nuke stick early (Escalate to De-Escalate) is said to be an invention of a certain meteoric risen Russian politician in his time as Secretary of the Russian National Security Council around 2000?
A brilliant method to madness.
From my outsiders perspective, I have never seen Europe so unified. Putin has inspired an astonishing amount of camaraderie amongst his western neighbors.
Whether or not he takes Ukraine is pretty much irrelevant now. They will have the equivalent of a warmonger penalty for at least a decade. I wonder if there is any truth to the rumor that he is sick, that's the only way I see that the whole puzzle fits.
Dictators have a tendency to surround themselves with yes-men over time as well, that's probably playing into this some.
Now I'm sure he realizes he miscalculated, but it's unclear how to stand down.
Unless the nuclear war is propagated a lot more in the media, I don't believe most Germans will take it seriously... for now. We currently have no nuclear weapons so from my perspective it's out of our hands anyway. Just because Putin mentioned it doesn't mean Germans see it as realistic. I can obviously only speak for myself but noone in my surrounding has mentioned it as anything more than political leverage.
Regarding sewing discord between western allies: The nordstream pipeline has been a point of contention between western allies and quite controversal in inner german politics. I don't see that changing, if/when the pipeline is used there will be outcries from allies and within Germany. Economically the choice might be made anyway because the energy prices in Germany are just extremely high and not all gas usage can be replaced by other sources.
Regarding refugees, it's hard for me to estimate the impact. This is honestly something i feel i should research a bit. My opinion is that short term such changes in population can have unforseen effects. Long term I believe it helps Germany with it's declining population. All the arguments regarding culture etc. don't mean much to me personally as all that changes over time anyway and clinging to some notion of culture tied to a geographic location is presumptuous. If you want a certain culture in your life.. then live that way.
And as I have already indicated, a method to madness implies above all .... Madness. And a system that selects a certain amount of madness as a means to national power. His frame of reference is obviously quite different from yours. And so, probably, is that of his close environment in Russia's power apparatus. That means, they could have stopped this beforehand if they wouldn't have the same method of thinking.
Beside, that 'Escalate to De-Escalate' thing which Putin may have introduced into the Russian discussion of its nuclear doctrine, involves the use, not just the threat,of a tactical nuclear weapon to stop an escalation of conventional war or if things go too badly. Just small enough that the Russian apparatus does not believe in nuclear retaliation by other nations. A surprisingly last-minute test of a small tactical nuclear bomb, that sort of thing. Or one in the atmosphere above the baltic sea, who knows.
This concept does not even require an immediate threat to Russian territory from enemy forces, i.e., their invasion. Which is their official doctrin for the use of nuclear weapons.
In short, it doesn't matter what you think, nor what I think. It matters what Putin and his cronies think. And obviously, nobody really knows what they think or are capable of. And what they even care to consider as a reality.
At the same time, they invested so much money on this pipeline, and attacked even before it was operational. Now this "Swiss" puppet company, which is also owned by Russia, is folding like it was caught by surprise.
And by "they" I mean Putin, because I'm pretty sure anybody with half a brain cell should've known that invading a country after a global pandemic was bound to get some backlash from the rest of the world.
They hoped that it wouldn't come to war, and were willing to risk the pipeline if it did. In the grand scheme, Russian national security goals trumped the economic factors.
There is an alternative narrative, which is possible but I don't believe:
Putin is simply evil and/or crazy, and therefor completely irrational.
It’s probably very very difficult to internalize that half the globe would love to see you dead so various delusions take that truths place instead.
This invasion is only to strenghten his internal position as there was more and more oppositon. "Saving" their Slav brothers wouldv'e given him enough time till death.
100,000 us troops in Europe and US nukes in Belgium, Germany, the Netherlands, Italy and Turkey have always been a threat.
How about arming their neighbors?
It was perfectly reasonable for Russia to think Germany couldn’t afford to dump NS2 (Russia had been deliberately running down reserves for 6months). The problem is that Russia’s actions galvanised Europe in a unique way. Suddenly Germany is more sceptical of the Russians than the Brits are, and the brits have very little on the line in comparison.
NS2 was controversial in Germany from the start, it was a bad idea politically because it weakened the position of the eastern european states. But it was not the bogeyman than many made it out to be.
Germany needs gas for heating, and heating is not optional. Heating is also expensive, and making it more expensive for strategic reasons is a very hard thing to sell.
The 50% that comes from Russia is.
Ed Snowden appeared to have been caught by surprise at the invasion, too.
Are you contradicting my comment?
“He is a former officer in the Stasi.” and “an ally of Russian President Vladimir Putin”
Funny how most of these former communist secret service agents are all involved in shady business. This is common to all former communist countries, east germany included. The former soviet aligned block somehow generated a lot of these types and i fail to understand why. Is it because communist suppression regimes relied on criminals in their early stages, and as such, they bubbled up into leadership positions? Or is it simply that they had access to information regular people didnt? But still I dont understand why they chose a shady / criminal path.
[1] https://en.m.wikipedia.org/wiki/Matthias_Warnig