I had connectivity problems. Wrote this Monday and Tuesday but just getting it posted today.
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A couple of days ago something happened to the Nord Stream 1 and 2 gas pipelines.
Today they are saying it must have been sabotage. A few people are saying it is an act of war (not me).
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You may have noticed that the war in Ukraine has had a lot of macroeconomic repercussions. This is an upgrade. I don't really want to post about military geopolitics for a macro class, but this is what we've got in 2022.
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You've no doubt gathered that Russia produces a lot of natural gas, which is piped to western Europeans. For gas, pipelines are a lot more economical than ships.
There are a number of pipelines doing this. Nord Stream (now called 1) and Nord Stream 2 are a couple of them. Nord Stream 1 is operational, but has been shut down since mid-summer. The Russians claim this is for maintenance, but few believe them. Nord Stream 2 is not operational yet, and progress on it was stopped by Germany after Russia invaded Ukraine.
Both run along the bottom of the Baltic Sea. Naive people worry about putting pipelines on the bottom of the ocean. Don't. This is safer: away from people, out of harms way, and well-insulated from the rest of the world.
These are big infrastructure projects. Costs are estimated at $15B (not sure if that is for one or both). Each pipeline's underwater part is about 800 miles long, the pipes are steel, 4 feet in diameter, and 1-2 inches thick.
They are mostly debt-financed by western bank syndicates. They are owned by the Russian company Gazprom through their German subsidiaries.
Potential revenue from these is highly volatile due to volatile natural gas prices, but $20B/yr is a reasonable estimate right now. Note that this is revenue not profits.
One could also estimate that if a big fraction of the $15B cost was financed with debt, that interest payments are in the $2B/yr range due to risk.
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Yesterday, at night, 3 events took place along the 2 parallel pipelines, in international waters, at different times, in a region where the pipelines are actually a few miles apart.
These were recorded by seismometers, and appear to be substantial explosions.
N.B. These were not natural occurrences. Natural gas doesn't burn (or explode) under water.
During the day, Danish planes found a bubble field on the surface of the ocean about a kilometer in diameter. Neither pipeline is running, but they do contain some gas in them as routine.
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This is an act of terror, but terrorists seem unlikely.
These pipelines are 200 feet deep. Despite what you see in movies, working at this depth is expensive and rare. It takes ships, submersibles, but probably not divers. But bottom line it takes money.
The pipelines are steel and 1-2 inches thick (remember they are under pressure), so this is in the range of medium armored military vehicles like armored personnel carriers. Bottom line, explosives won't budge these. You need armor piercing or shaped charge munitions.
You can't really "shoot" anything at that depth either, other than an actual torpedo. That seems unlikely because they leave wreckage.
In addition, it seems odd but not that surprising when you think about it, but metal reflects explosive shock waves. Not completely to be sure, but partially. And curved metal does an even better job at reflecting damaging shock waves.
I also learned today that anyone doing this would have to get quite far away before setting off the devices. This is because the escaping gas would upset the buoyancy of any vessel with a mile or two.
So, speculation is a submarine or submersible, using unmanned vehicles, to attach specialized charges in multiple spots, that cruised away and detonated from a safe distance.
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Who has the capability of doing this?
The United States. Russia. That's the short list.
The medium list would include the UK, France, presumably China, possibly Israel, possibly richer more militant oil states like Saudi Arabia, and Iran ... and that's about it.
It is not clear if Ukraine has this capability at all. Of course, they've been getting cool new military hardware for months, and they seem willing to use what they've got. But submarines?
It's definitely possible that some other countries — Germany, Poland, Japan, South Korea, maybe others — could probably cobble together all the different pieces required to pull this off.
It is also remotely possible that this is industrial espionage. Could a rogue actor in a pipeline company do something like this? Maybe. Shaped explosives aren't just used in the military. They'd have submersibles. They'd know where the sensitive spots are. But the motive is hard to come up with. Insurance fraud? Some Bond-worthy fantasy about driving up natural gas prices?
Could it have been environmental monkey-wrenchers? The scale of the attack would seem to preclude that.
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Who would benefit and who would be harmed?
This is not straightforward at all. In part, this is why this is such a big deal.
First off, this is a provocation more than an attack. No one was hurt. Nothing visible was wrecked. The pipelines weren't running. But they have been a center of controversy all year.
Certainly the syndicate of western lenders is harmed: they volunteered to turn their financial wealth into a physical asset on the promise of getting a steady stream of payment checks. No doubt they are insured, but acts of war, terrorism, and industrial espionage are usually not covered.
A key here may be that the Russians won't be harmed much by this. Their gas wasn't moving through the pipelines. If anything, they'd probably like them open and running. But (aha) they weren't the ones who closed them. In short, the value of the pipelines to Russia was taken away, and with it their incentive to leave them unharmed.