Gazprom PJSC has completed the Nord Stream 2 pipeline and said last week that it would work toward starting commercial operations on the system by the end of the year to move more supplies to natural gas-starved Europe. 

Nord Stream Pipeline

The company tied together the final section of the system’s second leg between the German shore and Danish waters. Pre-commissioning work will now begin. The 764-mile, 5.3 Bcf/d pipeline runs from Russia through the Baltic Sea to Germany. The first leg was finished in June

“Nord Stream 2 will contribute to meeting long-term needs of the European energy market for gas imports, improving secure and reliable gas supply,” Gazprom affiliate Nord Stream 2 AG said Friday.

The twin pipeline is considered crucial to supplying Europe with additional natural gas, where inventories remain significantly below what’s needed headed into the winter heating season. The continent has competed with Asia for liquefied natural gas (LNG) imports throughout the year. Pipeline imports to Europe have also been weak amid unplanned outages and regular maintenance. 

Both the front-month Dutch Title Transfer Facility and the National Balancing Point in the UK shot above $20/MMBtu on Friday. They finished higher Monday. The need for gas is so strong in Europe that leading benchmarks there are now above Japan-Korea Marker futures in North Asia, the world’s dominant LNG demand center. 

Some news media reports have suggested that NS2 could come online as early as next month. It remains unclear if the system would actually deliver new supplies or simply pull from other transmission networks as Russia has reportedly faced difficulties meeting domestic demand. The uncertainty has done little to slow the breakneck rally in European energy prices. 

“Without concrete information on the commercial start date of Nord Stream 2, additional price increases are likely for European gas prices,” said analysts at Engie EnergyScan in a note on Monday. 

Trading firm Energie Danmark added that, if anything, NS2 is likely to keep the market volatile for now. Low storage inventories, which stood at 70% of capacity on Monday, are likely to keep prices up in the near-term, the firm said. 

Despite Gazprom’s plans, NS2 still needs approval from German regulators. The system must comply with European Union rules requiring ownership of transmission and natural gas to be separate. The rule could prove to be complicated for Gazprom’s integrated structure. The certification process could also take up to four months. 

NS2 has been a source of international friction, with countries such as the United States claiming the line would increase the European Union’s (EU) energy reliance on Russia. The United States slapped sanctions on the project in 2019 and 2020, but the Biden administration waived them earlier this year in an effort to build stronger relations with Europe, where NS2 has supporters.

While Europe’s energy woes deepened last week amid record power prices in Germany and France amid reports of colder weather, it has created inroads for American LNG exports. More buyers have stepped up for long-term supplies this year to shield their portfolios from spot market volatility and overseas demand has kept exports strong.

Europe accounted for 32.2% of all U.S. LNG exports through June, while Asia accounted for 41.2%, according to NGI data