COMMENT: Could the US strike a deal to restart Nord Stream gas pipeline?

US President Donald Trump has made it clear that he wants to do business with Russia and tap into its vast raw material resources. But restarting the Nord Stream gas pipeline is the only US-Russian business project that looks viable once the fighting in Ukraine ends, and even that raises more questions than answers, Sergey Vakulenko, a political analyst with Carnegie Endowment for International Peace said in a recent note.

Warming relations between Russia and the US means deals are on the table as part of the Russo-Ukraine ceasefire talks that kicked off in Riyadh in February and March. Specifically, both the US and Russia have indicated they would be interested in cooperating in developing the Arctic region, where the bulk of Russia’s untapped gas and oil reserves are to be found.

But there are several possibilities. Russia has a cornucopia of minerals and hydrocarbons, the vast majority of which remain untouched. Putin responded to Trump’s interest in Ukraine’s rare earth metals (REM), (which bne IntelliNews reported exist in tiny amounts in Ukraine) with the suggestion in an interview that Trump invest in Russia’s rare earth metal deposits instead. Russia is home to the second largest deposits in the world, after China, according the Kremlin (27mn tonnes) and the fourth largest, according to the US Geological Service (10mn tonnes). But that was a “red herring”, says Vakulenko, as these projects take decades to return a profit and would cost billions of dollars to set up. Processing of the ore into refined minerals is a second set of massive and long-term investments that is currently dominated by China.

Another option is a return of US oil major ExxonMobil to Russia, which was active in Russia’s Far North pre-war, where it had several exploration projects in the Arctic with state-owned oil giant Rosneft. Amongst other things, it was a shareholder in the Sakhalin-1 gas project that is a major source of LNG for Asia and a Kremlin cash-cow. But ExxonMobil had to make a $4.6bn write-down when it was forced to exit after the invasion of Ukraine, “meaning it’s hardly likely to be in a rush to go back,” says Vakulenko.

 “The market also makes this deal unlikely, due to the high costs that make it viable only if oil prices are high – and right now, they are not,” he adds.

The conditions for the re-launch of the one remaining strand of the Nord Stream pipeline, which was destroyed by an explosion in September 2022, are much better. After a cold winter and the end of Ukrainian transit gas Europe at the start of this year, Europe has a 25bn cubic metre gas deficit – exactly the capacity of the surviving Nord Stream pipeline that is still full of technical gas and which could be turned on tomorrow. 

US investor and a veteran of the Russian market Stephen Lynch has already applied for permission to take the pipeline over, which currently belongs to Germany. His previous deals include acquiring the foreign assets of former oligarch Mikhail Khodorkovsk’s Yukos oil major that was broken up by the Kremlin, as well as Sberbank (Switzerland) AG, the Swiss branch of Russian state-owned banking giant Sberbank. 

“When it comes to Nord Stream 2, he’s likely hoping that once the war in Ukraine ends, Germany will again have a need for Russia’s plentiful, cheap gas,” says Vakulenko. 

Lynch has already submitted a request to have sanctions on the pipeline suspended to allow the deal to go ahead but it has apparently not yet been approved. “As a long-time donor to the Republican Party, Lynch is likely counting on a more sympathetic reception from Trump than he got from the president’s Democrat predecessor, Joe Biden,” says Vakulenko.

Economically re-launching the pipeline makes perfect sense. The EU, despite pledges to wean itself of Russian gas, has seen gas imports climb to around 18% of the EU’s total imports, mostly as costly LNG, due to the dearth of alternative supplies. Moreover, rising demand means Europe could face another energy crisis this summer that restarting Nord Stream would go a long way to alleviating. But there are plenty of political and economic stumbling blocks in the way of a deal.

“First, will Germany ever want to buy Russian gas again? On the one hand, Berlin has taken a principled stand against Russian energy amid the war in Ukraine, even banning Russian LNG tankers from docking at German ports (something not banned by European sanctions). On the other hand, German industry would benefit significantly from Russian gas, and some in Germany are worried about the country becoming too dependent on American LNG. A resumption of supplies would also mean supply would be diversified and prices would fall,” says Vakulenko. 

A ceasefire deal would make resuming imports of Russian gas much more palatable, and it has been suggested that the proposal should be included as a card to play in the ongoing negotiations with Kremlin, as long as the pre-war dependencies are avoided. 

Former German Chancellor Olaf Scholz has said he opposes a resumption of Russian gas supplies, but the incoming Friedrich Merz and the ruling CDU/CSU is more sympathetic to the idea.

Another problem is where the US will stand. Trump has made it clear that he wants to see Europe buy more US LNG, specifically calling for $350bn of additional EU sales. Investment bank Goldman Sachs expects demand for LNG to outstrip supply until at least 2030. And if Russian gas supplies to Europe were resumed, profits from Nord Stream 2 would not come close to covering the lost revenue from LNG exports, says Vakulenko. 

European Commission President Ursula von der Leyen has already suggested that the EU buy more US LNG as a sop to the mercurial Trump, but EU energy officials have pointed out that the decision to buy the gas is a commercial question resting with Europe’s leading energy companies and the EC itself has no power to “order” them to buy more.

Another problem is resuming a cheap and plentiful supply of Russian piped gas would cut into demand for US LNG shipments to Europe. However, in his request to the authorities, Lynch tried to anticipate this objection, arguing that “US control over the pipeline could be geopolitically advantageous for Washington,” if the EU made the decision to turn the pipeline back on over the head of Washington.

And that is possible. In March the Danish authorities ordered the surviving strand to be technically sealed, preserving the technical gas in the pipeline and making it easier to restart flows should the political decision be made to resume gas flows.

“In other words, if the United States can’t stop Russia from increasing its gas supplies to Europe after the end of the war, it should try to control them,” says Vakulenko.

Restarting the surviving stream is a question of flicking a switch, but the other three strands of Nord Stream 1 & 2 pipelines could fairly easily be repaired: Lynch estimates it would cost less than $700mn. The twin pipes would then supply Europe with 100 bcm per year, fully meeting Europe’s demand for gas together with TurkStream in the south, which connects Russia and Turkey by carrying 15 bcm to Hungary via Bulgaria and Serbia.

In this case Ukraine would permanently lose any chance of resuming its own transit that used to earn it $3bn a year pre-war, as well as symbolically excluding it from the Europe-Russia relationship. Ukraine would almost certainly oppose the resumption of Nord Stream’s operations.

“In his application, Lynch sought to head off some of Ukraine’s objections by proposing that Kyiv be given a minority share in Nord Stream 2. However, that would bestow much less political and economic clout than full control over gas supplies flowing through pipelines on Ukrainian territory,” says Vakulenko. Ukraine’s Soviet-legacy pipeline capacity is huge, a total of 143 bcm a year, and could more than match that of the Nord Stream 1 & 2 pipelines, but it is entirely dependent on Russia’s goodwill to fill its pipes and tanks, also the largest in Europe.

The final question is: would Moscow agree to pump gas through a pipeline that was controlled and managed by a US investor? On the one hand, state-owned gas giant Gazprom has been making heavy losses for the first time in decades as a result of the end of European exports, “and is in no position to play hardball,’ says Vakulenko. On the other hand, “the Kremlin has shown time and again that it values status over financial gain.”

Against that, resuming gas deliveries hands the Kremlin some leverage over the EU, but those calling for the pipelines to be reactivated are clear that the EU cannot return to the previous dependency. What that means in practical terms is imports have to be held to a maximum of 15% of the EU’s total gas imports – a level that can be replaced by LNG imports should the Kremlin threaten to cut off supplies again.

Europe is already importing just over 15% of its gas supplies from Russia. (Germany claims to have ended all Russian gas imports, but as bne IntelliNews reported, it has actually seen imports increase in 2024, except they are imported via Belgium as LNG and not labelled “Russian” in origin, but as from “Belgium”.) However, switching from LNG to piped gas would cut the vagrancies of supply from the now commoditised LNG gas market as well as dramatically reducing the cost for the same volumes of gas.

“In the final analysis, Nord Stream 2 – the only US-Russian business project that looks like a viable prospect after the fighting in Ukraine ends – raises more questions than answers. Kyiv would undoubtedly lose out. But there are at least as many cons as there are pros for all the possible participants,” concludes Vakulenko.