Repair of the Nord Stream gas pipeline could cost €1.3 billion

The cost of restoring the Nord Stream gas pipeline, destroyed by explosions in 2022, could reach €1.2–1.35 billion. This is a preliminary assessment of work to remove water from the pipes, stabilize them, repair and replenish lost gas reserves, made by the operator of the Nord project Stream AG. The company has prepared it for a lawsuit with the project’s Western insurers, who are refusing to make payments. Restoring the pipes, according to analysts, with such an assessment of the work, will be advisable subject to long-term demand and high gas prices.

Nord Stream AG, the operator of the Nord Stream gas pipeline, preliminary estimates the costs of removing water from the destroyed two strings of the gas pipeline, stabilizing them, repairing them, and replacing lost gas in the range from €1.2 billion to €1.35 billion. This follows from materials sent by Nord Stream AG to the High Court of London, which I have read Financial Times.

Nord Stream AG in February filed a claim in a British court against insurance companies for €400 million, demanding to cover damage from gas pipeline explosions. Defendants include Lloyd’s of London and Arch Insurance, which refused to cover the damage.

The claim against Lloyd’s of London concerns the provision of primary insurance policies, under which insurers take the first losses from any event. Arch Insurance, the FT writes, was supposed to provide so-called excess cover – these policies come into force after the underlying policies have been paid for.

Gas pipelines Nord Stream 1 and Nord Stream 2 got serious damage as a result of sabotage on September 16, 2022, during which significant sections of three lines were blown up on the bottom of the Baltic Sea in international waters near the Danish island of Bornholm. As a result, both lines of Nord Stream and the first line of Nord Stream 2 were destroyed. The second line remained undamaged and, in theory, can technically supply gas to Europe, but Germany at the time of the explosions did not give permission to put Nord Stream 2 into operation. Both pipelines were not supplying commercial gas at the time of the explosions. The Nord Stream operator, Nord Stream AG, reported at that time that the damage to the gas pipelines was “unprecedented” and the time frame for repairs was impossible to estimate. Nord Stream and its operator, unlike Nord Stream 2, are not under US sanctions.

February 7, Swedish Prosecutor’s Office announced on the termination of the investigation into sabotage at Nord Stream. Stockholm said that Swedish jurisdiction does not extend to the incident, and all available data was transferred to Germany, which remained the only country continuing to investigate sabotage on pipelines. At the end of February, my investigation stopped and Denmark.

The construction of the Nord Stream pipeline system, designed to transport up to 110 billion cubic meters of gas per year from Russia to Europe, cost Gazprom and European partners, who had already written off their investments, approximately €17 billion. Therefore, immediately after the explosions, the question arose: Is it economically feasible to restore gas pipelines?

Maria Belova from Implement believes that restoration will be feasible only if there is stable long-term demand for this gas, and at a high price.

But, according to Sergei Kondratyev from the Institute of Energy and Finance, restoration may be relevant even at current gas prices. So, now EBITDA for gas supplies via Nord Stream exceeds $100 per 1 thousand cubic meters, so the launch of Nord Stream would allow recovery costs to be recovered within a few months. However, this calculation is based on the full load of the gas pipeline. At the same time, Sergei Kondratyev believes that the likelihood of starting work on restoring the gas pipeline in the next few quarters is low due to high political risks.

Tatiana Dyatel