A contentious Russian-led gas pipeline in Europe will soon exist — Here's why it matters

Two pipeline inspection gauge (PIG) traps were installed at Nord Stream 2's PIG receiving station in Lubmin at the end of July / early August. Special heavy transport equipment brought the traps to northern Germany. They are nearly 20 meters long and weigh about 60 tonnes each. (Image from Nord Stream 2).

Nord Stream 2 | Paul Langrock

The construction of a disputed natural gas pipeline in Europe will be completed within months, analysts told CNBC Thursday, despite fierce opposition from the U.S. and division in the European Union.

After months of delays, Denmark's energy agency announced Wednesday that it had given the green light to allow Nord Stream 2 — an undersea pipeline that will allow Russia to bypass Ukraine when delivering gas to Europe — to build its pipes in Danish waters.

The decision comes as a blow to U.S. efforts to prevent the completion of the Russian-led project, after repeated warnings it will increase European dependence on Russian energy.

"We are pleased to have obtained Denmark's consent to construct the Nord Stream 2 Pipeline," Samira Kiefer Andersson, a Nord Stream 2 official, said in a statement on Wednesday.

"We will continue the constructive cooperation with Danish authorities to complete the construction of the pipeline," Andersson added.

Nord Stream 2 is a pipeline currently under construction from Russia to Germany via the Baltic Sea.

The route of a proposed new gas pipeline from Russia to Europe.

nord-stream2.com

The new pipeline will run alongside the already constructed Nord Stream and will double the amount of gas being funneled through the Baltics to 110 billion cubic meters per year.

Estimated to become operational in early 2020, the pipeline is projected to cost 9.5 billion euros ($10.5 billion).

Nord Stream 2 says the pipeline "benefits all of Europe, including millions of consumers in terms of lower energy prices."

But, many are skeptical about the purely economic reasoning attributed to the project.

Earlier this year, U.S. authorities threatened sanctions against companies that take part in the pipeline, although there has been no sign the White House will follow through.

'Tremendous mistake'

In June, President Donald Trump warned Germany was making a "tremendous mistake" by relying on the pipeline, warning the project "really makes Germany a hostage to Russia."

The U.S. strongly believes Nord Stream 2 threatens the energy and national security of its European allies because it increases Russia's control over the region's energy supply. The White House is also believed to be keeping all options on the table as the pipeline nears completion.

"The project is very politically sensitive because of the way it pits Europe's economic interests against Europe's broader geopolitical and strategic interests," Kristine Berzina, a senior fellow at the German Marshall Fund in Brussels, told CNBC via telephone.

I would be surprised if the U.S. does not roll out sanctions on things related to Nord Stream.

Timothy Ash

Senior emerging markets strategist at Bluebay Asset Management

It is not just the U.S. that has expressed opposition to Nord Stream 2. Poland, Latvia and Lithuania — all of which share a border with Russia — are publicly opposed to the project, as well as France.

When asked whether this week's developments represented the last major hurdle for the Russian-led pipeline: Berzina replied: "Yes. This was the piece of the pipeline that had not been laid under the Baltic Sea."

"Effectively, the pipeline will soon exist."

Political battleground

With 28 countries and a combined population of around 512 million people, the EU is something of a prized market — and political battleground — for the world's largest energy exporters, particularly when it comes to natural gas.

Russian President Vladimir Putin welcomed the approval by Denmark's energy agency on Wednesday, before adding that the pipeline was in Europe's interests.

However, less than 24 hours after Denmark's decision, Ukrainian President Volodymyr Zelenskiy said the move would weaken Europe and strengthen Russia.

Nord Stream 2 pipes are loaded onto a vessel in the northern German port of Mukran for transshipment to a storage yard.

Nord Stream 2 | Axel Schmidt

"The only reason to build this pipeline is to screw Ukraine," Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, told CNBC via telephone.

"I would be surprised if the U.S. does not roll out sanctions on things related to Nord Stream as they are eager to get a foothold in the European gas market via LNG (liquefied natural gas) exports," Ash added in a research note.

Russia has long been the dominant source and supplier of natural gas to Europe's mass market but the U.S. is looking to challenge Russia by stepping up its imports of U.S. LNG making it easier and safer to store and transport.

"Trump has been very pro-Russia. But, the only position he has taken that has been pretty aggressive against Russia is Nord Stream 2."

Some U.S. lawmakers are against the Russian-led project because of legitimate concerns about Ukraine, Ash said, but for the U.S. president, it is "purely economic."

Read More