Blog Description

How Will Nord Stream 2 Drive the European economy?

Oil and Gas | Aug, 2021

The Nord Stream 2 project intended for safe and secure supplies of natural gas to the European Union, covering 28 countries has created a lot of geopolitical tensions ever since its inception. The construction of a gas pipeline under the Baltic Sea between Russia and Germany is expected to lower gas transport costs, reduce Europe’s import dependency, and narrow the supply gap. The new gas pipeline would make Europe heavily dependent on Russia for accomplishing their natural gas supplies but how would the largest infrastructure project influence economies?


Natural gas plays a crucial role in boosting Europe’s economy, bridging technology for the transition of electricity systems in the mobility and heating sectors. According to the European Commission, the gas consumption in the EU has risen by 7.6% Y-o-Y to 141.8 billion cubic meters. The widespread practice of remote working coupled with cold spells led to a 3.4% increase in gas consumption for residential heating purposes. 


Amongst the EU countries, Germany is the biggest gas-consuming country with rise in demand by 11% (3.4 billion cubic meters), followed by the Netherlands, France, and Italy. Despite the fall in production and rise in demand, the import of natural gas declined by 3% Y-o-Y due to EU storage. Russia has remained the top gas supplier to the EU, and the country’s share in the extra-EU gas imports was 45%, up from 41% in Q1 2020. The gas supplies from Russia to Western Europe have been flowing uninterrupted even during the EU/US conflict surrounding Crimea. However, the new pipeline is expected to ensure more security as now only limited countries are a part of the Nord Stream 2. 


According to some studies, the demand for natural gas in Europe is expected to remain constant, but domestic production might decline. Europe could become even more dependent on imports, mainly from Russia. The Nord Stream 2 pipeline is under construction to transport an annual natural gas capacity of 55 billion cubic meters (bcm) from Russia to Germany, which could prove to be fundamental for powering a climate-neutral economy. European gas buyers are not government agencies rather commercial enterprises that choose the cheapest gas to produce and use in Europe, which is the Russian gas. The purchasing decision of European gas buyers is driven by the upfront economic costs and established commercial partnerships with Russian gas suppliers.  


Influence of Nord Stream Pipeline on Europe’s Economy

The European Commission’s vision for reducing greenhouse gas (GHG) emissions by at least 40% by 2030 and achieving net-zero emissions by 2050 would require a serious level of decarbonization strategy. While the increasing level of electrification might reduce dependency on fossil fuels, electricity would not be able to cover all our energy requirements in the future. However, renewable methane and hydrogen can play an essential role, especially to meet the growing energy demand in industries, automobiles, and the power sector. The gas market of the European Union has the potential to decarbonize the economy, allowing a switch to low and zero-carbon forms of gas. As carbon forms of gases are expected to play a key role after 2030 as the world is moving towards sustainability, the EU has a limited time frame to be market ready.


Due to its great size and relevance of the European infrastructure investments for the energy sector, the Nord Stream 2 project receives a lot of attention. There are multiple countries that directly or indirectly benefit from the Nord Stream 2 project. Until July 2021, USD11 billion have been invested in the natural gas pipeline project covering 764 miles under the Baltic Sea from Russian fields to the German coast, doubling the capacity of the original 2011 Nord Stream project that runs parallel to the new one. The pipeline system covers major economic zones of five countries namely Russia, Denmark, Finland, and Sweden. The most pronounced economic effects of the Nord Stream 2 project have been observed in 

  • Countries where manufacturing operations related to the project takes place such as Russia, Denmark, Finland, Sweden, and Denmark
  • Countries associated with the offshore oil and gas industry such as the Netherlands, United Kingdom, Norway, and Italy
  • Countries with headquarters of major international service providers
  • Switzerland, Nord Stream 2 headquarters from where professional, technical, and IT services are provided


Any kind of economic activity such as setting up a business, making capital investments, or even purchasing services will create an impact on the local economy. Nord Stream project provides three ways investment benefits such as direct effects, indirect effects, and induced effects. Direct effects of investments include activities related to construction, engineering, permitting surveys, and so on. Indirect effects benefit those involved with the provision of goods and services linked with the project such as companies buying raw materials or employ services of their own for companies to function. The induced effects include expenditure by employees involved with direct and indirect effects such as rent, food, leisure, etc. 


For the Nord Stream 2 project, around 1,000 contracts from different countries are involved that include some of the major international industrial conglomerates for manufacturing thousands of pipes to small and medium-sized firms for providing technical assistance and other services. Many sub-contractors including foundries, specialty welders, tools and machinery suppliers as well as coaters are the major beneficiaries of the Nord Stream 2 gas line project. 


Italian manufacturer PetrolValves produced the Large Top Ball Valves (TEBV) for the Nord Stream 2 project. The highly specialized valves are critically designed for emergency shutdown, protection from overpressure, and isolation of pipeline sections for maintenance. The total order contributed to around 30% of the company’s earnings in 2018. The project helped to retain staff when the oil and gas sector was in recession and many projects were either canceled or delayed.  


Major Coatings and Logistics company, Wasco partnered with Blue Water Shipping to handle logistics supplied by EURO PIPE, OMK, and Chelpipe. Pipes were stored in coating plants of Wasco in Mukran (Germany), Kotka (Finland), Karlshamn (Sweden), and Koverhar (Finland). Since cold weather is a major challenge in the Baltic Sea region, Wasco developed a highly automated system to remove ice and snow from the pipes with the help of sub-contractors. At each coating plant, Wasco employed around 400 people and additional 100 people at the storage sites, which boosted local employment and led to the economic development of the region.



The Nord Stream 2 project started at a time when the oil and gas industry was experiencing cutbacks and lay-offs. The Nord Stream 2 project contributed USD5.28 billion in GDP for the EU while creating 57,450 full-time equivalent jobs in 2018. The biggest winner of the project within the EU is Germany, which added the most GDP and recorded the highest employment rate. Despite the obvious financial implications, the Nord Stream project has remained highly controversial and aroused many geopolitical tensions.


The gas line makes Europe heavily dependent on Russia for natural gas while jeopardizing the economic, energy, and national security of Central and Eastern Europe, particularly Ukraine. Besides, the US government has continued its disagreement on the nearly finished pipeline project to prevent Russia from using its Nord Stream 2 gas pipeline as political leverage. However, the US government has finally reached an agreement that reflects US’ acceptance of the pipeline, only to maintain a sound relationship with Germany. Although the billion-dollar infrastructure project can enhance energy security and promote sustainable energy initiatives across Europe, the Ukraine government is hardly reassured. 


According to TechSci research report on “Global Small Scale LNG (SSLNG) Liquefaction Plant Market By Capacity (Up to 0.16 MTPA, 0.17 – 0.33 MTPA, 0.34 – 0.65 MTPA, 0.66 – 1 MTPA) By Region (Asia-Pacific, Europe, North America, South America, Middle East & Africa), Forecast & Opportunities, 2024”, the global small scale LNG liquefaction plant market is expected to grow at a CAGR of approx. 7.2% to reach USD219.6 million by 2024. Rising government initiatives to reduce carbon footprint and maintain environment sustainability are fuelling the growth of global small scale LNG liquefaction market.



According to another TechSci research report on “Europe Oil & Gas Pipeline Market By Application (Midstream, Downstream, Upstream), By Type (SAW, Seamless, ERW, Polyethylene & Composites), Competition Forecast and Opportunities, 2012–2022”, Europe oil and gas pipeline is expected to grow at a CAGR of over 4%, owing to rising demand for crude oil in Europe and rising investments in oil and gas pipeline infrastructure across the region.