Female Speaker 1: This episode of Energy Cents is brought to you by S&P Globals Financial and Capital Markets Energy Advisory Group. Our team of experts provides the investment community with actionable insight and integrated thought leadership that identify the trends and trend makers of global energy markets. Solutions cover the full energy and natural resources sector from traditional fossil fuels to emerging clean tech ideas and supply chains and are available via recurring reports webinars robust data sets and personal engagements with experts.

Hill: All right. Welcome back to Energy Cents. This is Hill Vaden and I am here today with Lauren [indiscernible] [00:00:37]. How are you Lauren?

Lauren: Great Hill. Thanks for having me on.

Hill: Yeah. Gladly. So Energy Cents as we know is an S&P Global podcast to discuss the things that lie on the intersection of energy and finance. And Lauren is executive director of focused on European Gas within S&P Global as climate sustainability group. And so we're going to talk about European Gas and what's going on with Nord Stream 2. Before we get into that Lauren is also a big fan of the NBA and he is from Michigan. So does that mean that you are a Detroit Pistons fan, I hope I guess.

Lauren: I guess I still remain a Detroit Pistons fan. I mean I don't I live abroad I live in London and the Pistons are not good. But you can still harken back to the old victorious days. I was there when they won their two titles in the late 80s, they were playing temporarily in the Pontiac Silver dome. So anyone could go. So I saw all those games at home in the upper deck of a football stadium. You couldn't see anything but it was a lot of fun and the tickets were $10 or something.

Hill: Yeah. So does that give you and I'm not necessarily a Pistons fans I don't dislike the Pistons. I really like that that team years ago with Rip Hamilton and I think Chauncey Billups was on the team but I have an appreciation for the Bad Boys of I guess the late 80s [crosstalk] [00:02:02] Isaiah, Laimbeer.

Lauren: Laimbeer. Yes, dirty player I will have to admit but successful.

Hill: But that's I feel like sports needs a hell right if you look at the WWF right and you've got Rowdy Roddy Piper and Hulk Hogan and they were that great hell. And I'm not sure that the NBA or really anyone has a hell right now with.

Lauren: That's true. They're all friends. They're all they all get along they're all friends. Bill Laimbeer also while he was in the NBA not maybe for his whole career but in the beginning was the only player in the NBA with a salary lower than that of his father who was the CEO.

Hill: [indiscernible] [00:02:43] right?

Lauren: His father was I think he was from Cleveland. His father is the CEO of some big industrial type company type or something.

Hill: That's right. Yeah I had forgotten it. I think it was one of the, was one of the auto--

Lauren: I don't know. It could be.

Hill: Okay. So do you are you apologetic of Isaiah and everyone walking off the Bulls court in 91.

Lauren: I don't mind, it was, it was their style. It was their style. So I forgive them. I see why people criticize it but I personally would not.

Hill: When the Celtics did to them I think in 88.

Lauren: That's right, that’s the Pistons [indiscernible] [00:03:19] to that allegation. You're up on, you’re up on your squabbles of the late 80s NBA.

Hill: I am and maybe as a segue, the lack of diplomacy from Isaiah and Laimbeer is perhaps maybe the opposite or perhaps some of what's related to Nord Stream and the art of diplomacy as we're talking about European Gas so maybe if you could just provide a little bit of an update. Nord Stream 2 is one of the more I guess popular kind of headlines in terms of the global natural gas right now at least as it relates to Europe it's hard for me. And I would imagine many to kind of get a feel exactly what's going on that there's a lot of sanctions from the US. Can you gives some bit of a status of what's going on with Nord Stream 2 right now and where we are?

Lauren: Sure. I mean I'd say the main thing about it is it has a very, very high profile because it's become much more than a pipeline. This pipeline has become a symbol of Russia and how the US responds to Russia, how Europe responds to Russia. So it's gotten freighted with all of this meaning and significance that from a pure gas industry perspective it probably doesn't deserve. But this is a project that was initiated by Gazprom with five European companies as its partners in the mid-2010s along the route of an existing pipeline called Nord Stream 1. Nord Stream 1 is actually two parallel pipelines. Nord Stream 2 will be two more parallel pipelines. So this would take gas from Russia across the Baltic sea straight to Germany and allow less reliance on what is still currently the main transit route for Russian gas which is Ukraine.

The project got a lot of criticism particularly from the U S. That eventually by late 2019 turned into action with the imposition of sanctions not on Gazprom not under tuned to the project, but on European or whatever types of firms Russian firms that were subcontractors supporting the laying of the offshore pipe. So this stopped the project about probably a month, month and a half away from the completion of pipe lay in its tracks and since then there's been sort of a cat and mouse game as the project is now proceeding again despite the sanctions presumably with entities that are not susceptible to sanctions. And but meanwhile the criticism and the political opposition to it has ramped up quite a bit.

Hill: And so this would lessen the reliance on Gazprom gas into Europe through Ukraine, but it's not going to it all less than the reliance on Russian imports into Europe correct?

Lauren: That's correct. I mean it's a different it's a different route but I think in the analysis we see Russians share in the European gas market being driven by supply and demand and price and also by Gazprom strategy whether it wants to dump a lot of gas into the market and drive prices down but increase its market share or whether it wants to hold gas back allow prices to come up and take a lower market share and it really doesn't matter from that perspective whether Nord Stream 2 is built or not because there is this existing route through Ukraine which has been actually quite reliable. So a lot of the criticism says this is going to make Europe more dependent on Russian gas and it's just very hard to see how that could be the case.

Hill: I got some couple questions. Why did it take one why does the US care and why all of a sudden after, It's almost it's only a couple 100 m from being completed. Why get involved so late in the game after the pipe is nearly done?

Lauren: Okay. It's more it's still at this point probably 70-80 kilometers or so. But the point is, well the US interest is based primarily on the perception which has something to it that this is a pipeline to bypass Ukraine, now who cares in some sense. Why is it in the US and just whether a pipeline goes one direction or not. Well it's because of what the recent history between Russia and Ukraine. Where in 2014, Russia occupied and essentially seized Crimea which was a part of Ukraine is now from Russia's point of view part of Russia and then also sort of supported and fomented rebellion in Eastern Ukraine. I think pretty clearly was driven by Russia. And so in that context there's a tremendous desire to support Ukraine in the face of this Russian aggression.

And there have been sanctions going back to 2014 during the Obama presidency through executive order that allowed them codified into law during the Trump presidency by Congress to sanction Ukraine. I'm sorry rather sanction Russia to try to punish it and given it an incentive to roll back what it's done in Ukraine and so this is just coming on top of all the other things that have been done which have had frankly some significant impact, but have not changed Russian behavior at all. Why so late, that's a good question I think I think a lot of this has to a correctional process it's not that easy to get a bill to the floor. There's not really opposition in Congress to this.

People aren't familiar with the details, they aren't familiar with some of the diplomatic downsides of doing this kind of to Europe and to Germany in one sense I can get to that later, but it's against Russia. Russia it's not popular in Washington right now not just supposed to be Ukraine but because of the aftermath of election interference in the in the 2016 election. So but it's hard to get a bill It's hard to get time on the floor. And so bills have been introduced and it never made it to a vote. So what happened and this turns out this is how you can get a lot of legislation through. That's not making it to the floor it got stuck into in late 2019 to the National Defense Authorization Act.

This is a big omnibus bill thousands of pages long that kind of must pass every year because it sets, it's not actually a finance authorization bill but essentially sets the agenda for the next year and it's considered to be a must pass bill. So after the NDA in 2019 had been passed through the House and through the Senate when they had the conference committee to bring the language together, this sanctions against pipe lay barges specifically one company that was owned and operated the barges that were laying the pipe that was dropped into the NDA passed into law. And that was that, so that company all ceased stopped. So it essentially it was only in the last moment the opponents and certain strong opponents led I think by Senator Cruz [phonetic] [00:10:03] of Texas thought of this or achieve this sort of end run around the normal process by sticking it in the NDA. Then those sanctions were tightened in the NDA. That was signed into law on January 1st of this year. That's sort of the 2021 NDA by expanding the sanctions to cover not just the pipe lay barge operator but any other companies providing services in support of pipe lay basically.

Hill: And is it all, geopolitics I mean as a comparison in the US that there is all the attention on the kind of the oils and pipeline coming from Canada to the US. Where again it's just that the last few feet or meters or I don’t know exactly what it is. But it's another kind of last minute stoppage where it seems to be driven a lot by environmental concerns that if you can stop the pipes you can stop the production of what's going into the pipes. Is this all geopolitics or is their environmental concerns around this kind of European pipeline [crosstalk] [00:11:03]?

Lauren: Well it's a good point. I mean it is basically geopolitics and from the U S intervention on this is certainly about the politics explicitly. In Europe there is environmental opposition as you can imagine from a European perspective just given the trend of decarbonization and the increasing role of renewables and sort of an outlook for gas demand in Europe that is sort of flat and then generally declining over time. This is probably going to be the last big new gas pipeline to Europe along with Baltic pipe which goes from Norway to Poland which is being built. Europe just doesn't need big new pipelines. In terms of, there are some environmental groups in Germany which have started there's been a few lawsuits to stop the project which have not succeeded so far. And the Green Party in Germany has come out in opposition to it for primarily for environmental reasons as well. But as of now there's nothing in German policy really that's going to change the situation at this point. It's really the US Sanctions that threatened to stop the project.

Hill: So what are the strategic intentions of other if the US is concerned maybe for I guess balance the power of Russia type relations? What's driving the different behavior of the European participants? I understand that Germany has one view in non-German Europe as potentially another view? Can you describe about what's going on with us?

Lauren: Yes. First of all one thing about this debate that's interesting is a lot of it is characterized in terms of the European gas market, the impact of the European gas market that this pipeline would have and as I've already said this doesn't actually increase the EUs dependence on Russian gas doesn't really, doesn't really affect that. But you'll still hear a lot of argument that the sanctions bill in the US is called the protecting Europe's Energy Security Act. So which I'm not sure that it does. So you hear some of those same arguments from the countries that are very strongly opposed to it in Europe led by Poland and then the three Baltic states, now those countries really aren't, they will make some arguments I mean the Baltic states aren't affected at all by this, they have access to LNG.

Thanks to Lithuania building re gas terminal a few years ago and they get [indiscernible] [00:13:19] the Russian gas directly from Russia. Poland could be, it's gas market wouldn't really be affected but it does have another pipeline transiting Poland that does not provide the same level of revenue with the same level of importance as Ukraine's transit revenue but it's something and that pipeline could be used less if Nord Stream 2 is finished, but really for them it's about politics. I mean the Polish government is strongly supportive of Ukraine. The Baltic governments are strongly supportive of Ukraine and a lot of other governments in Europe are strongly supportive of Ukraine and opposed to much of what Russia has done.

And so I think each different European country and in fact different European parties or even politicians weigh these things differently. Germany has tended to want to continue to do business with Russia and frankly didn't see this as a political project when it got started I mean there's a misconception I think among a lot of people in the US and everywhere that you need some political decision from Angela Merkel or something like that for a pipeline like this to get built. Well no I mean there's you have a pipeline project, you apply to the relevant administrative parts of the bureaucracy for all the permits you need. And once you have the permits you start building there's no mechanism to politically support or block a project.

So I would characterize what Germany has done really is less politically supporting the project although there's some of that, but politically opposing the US trying to dictate its policy at the last second with the use of sanctions, but the US can only impose because of the US dollar. These are extra territorial sanctions which threaten a German company or a Russian company or any company supporting pipe lay with not having access to US dollar clearing. So you can't do any transaction US dollars with anyone even if it has nothing to do with the US. Because that's still has to go through the US financial system. So in Europe there's a long standing going back to the 90s principle that this is unacceptable. This is illegal under EU law. And so that's kind of the principal basis of the opposition to the Sanctions.

Hill: Principle in the sense that Germany doesn't want somebody else messing with its decisions.

Lauren: Yeah. The EU does not accept the principle of any country imposing extra territorial sanctions on EU companies or states or anything. And that's actually ensuring, this all started with actually the Iran-Libya sanctions act from 1996 which imposed, which stopped said European companies cannot do any business with Iran. And then there was a huge pushback and human cry from Europe Led by Tony Blair that EU passed a law which is still on the books called the blocking statute which says it's illegal to comply with these sanctions. In practice they will waive that for European companies that simply must not fall afoul of US sanctions. But it's a matter of law that that's not acceptable from the EU point of view. So that's now what's weird about this case is that the Polish government on some level there's someone in Poland who as part of the EU membership understands that EU sovereignty is important. But in this case the Polish and the Baltic states and a few others there is so much more focused on this issue than that broader principle which is a bit abstract that they're in support of the sanctions and the US stopping it with sanctions because that seems to be the only way to stop it at this point.

Hill: From the US perspective.

Lauren: From anyone's perspective I mean if you're in Poland appealing to Germany to not support the project that ship has left to the port because project is 95%. So I mean if Germany there's a lot of people also urging Germany to have a moratorium or at least while we think about this or something like that but there's really no legal or it's not clear what the legal basis for that would be. And this is where you're going to points of law. But there's a pipeline that started up a few months ago, that brings Azerbaijani Gas to Italy called the Trans Adriatic pipeline. And as that and that was a long hard road getting that pipeline built and getting all the permitting done in Italy it wasn't politically controversial at all. That seemed to diversify European gas supply and sort of had political support. But Green Parties in general don't want as I said new gas pipeline. And when this sort of strange coalition in Italy came to power a few years ago including the Five Star Party which is kind of a party from out of left field neither left nor right and they came into the coalition and their guy their party their position was against this pipeline and their person as part of the coalition became energy minister.

And the first thing he said was we're cancelling this pipeline and after a few weeks went by a lot of conversations were had with lawyers and then the Prime Minister came out and said we're not cancelling the pipeline. We've looked into this and we know that was in the platform of our of our coalition partner, but if we do will be liable for enormous damages because there's no justification for it in terms of the existing law at the time that the pipeline was built. So they backed off from that I think fortunately for everyone. So there's real question as to whether Germany can do anything, to think about the US is nobody can really sue the US for stopping the project. They can try, but that's never that's never worked in the past.

Hill: So it sounds like the EU is kind of caught in a matter of principle Ukraine clearly what I would assume is against the pipeline because they want the revenue from the tolling whatever from Russia gas going through Ukraine. Russia clearly wants two avenues into at least two avenues into Europe. Is that the basic kind of kind of framework? I mean do this Europe or the EU, do they care about it from a security of supply perspective given the re gas and the other access to natural gas?

Lauren: I think the general, yeah the general view of the European gas industry and sort of analysts like myself who cover the European gas industry as opposed to covering politics or something like that. Is that certainly in the past the EU has been vulnerable to over dependence on Russian gas, not that EU necessarily as a whole but certainly the central and eastern parts of the EU have had some dependence. But what's happened in Europe is that over the last 10-15 years, you've seen tremendous progress in reducing the significance of this share of Russian gas in the market and that's because of LNG because of building a lot of re gas as I mentioned Lithuania. Poland has already has also built to re gas plant and is building a pipeline direct from Norway.

There's a lot more interconnections reverse flow so that the network of pipelines transmission pipelines that links Europe, there's more and more connections across borders. There's the ability for gas to flow in both directions. And there's also rules that mandate liberalized third party access to pipelines fair and published tariffs and all of that stuff. So and then to top it all off, the antitrust authority in Europe which is called Director of General for competition started an investigation into Gazprom's historic behavior in 2016 and found preliminarily that Gazprom head misused its dominant role in certain national markets within the EU to unfairly price it's gas. And this led to these things can lead to massive fines sometimes Google, it’s happened to Google, it's happened to Facebook or it's happened to Microsoft in Europe, with this led to was the other alternative which was a negotiated agreement between Gazprom and the competition directorate, where Gazprom and by the way in the meantime over the few years this is going on Gazprom stopped all of that stuff because they were being watched and prosecuted for it, are on the verge of being prosecuted for it.

So Gazprom now I won't get the details but they agreed to a document and they will be subject to enormous fines if they violated. So I think they won't that sort of compels them to where it does have a dominant position which is not very frequent anymore. It cannot act as if that it cannot take advantage of that dominant position. So we've seen in Bulgaria and in Poland as a result of that settlement. Those companies that are counter parties with Gazprom went to Gazprom and renegotiated their prices along the lines of what had been dictated by this agreement with the EU and got a big price reduction.

So there's no risk from a gas market point of view. That doesn't stop people from saying that there is, but there isn't, now Ukraine is a different matter. I mean for Ukraine certainly there's the issue of lost transit revenue. There is no longer an issue of dependence on Russian gas per se Ukraine in 2015 stopped buying gas directly from Gazprom and buys all of its gas that it imports it produces about two thirds of the gas it needs and imports a third. Those imports are coming from Poland, Slovakia, Hungary by so called reverse flow. Those are Russian molecules but they are being purchased on the market from traders not in a transaction with Gazprom, but Ukraine will lose transit revenue to the extent that Nord Stream 2 takes away the flow of gas through Ukraine which it certainly would to a certain extent.

Hill: Am I right that Ukraine has a lot of storage available to Europe and does, in a sense could Ukraine be even if the storage opportunity with them more mature LNG trade can help to balance the lost revenue from Nord Stream 2?

Lauren: Well it's less about the revenue I would say, what Ukraine did at the beginning of 2020 in the context of signing the expiry of an old agreement on transit with Russia with Gazprom signing a new one that allowed them to do what they were supposed to do under EU rules as a member of the energy community which is kind of a waiting area for energy only for countries in south eastern Europe they unbundled their transmission company. So they took the transmission company pulled it out of the big state oil and gas company Nafta Gas made it separate. And this new company has been very aggressive and very creative in terms of doing commercially clever things to make money not in the scale of the Russian transit revenue but to make money by providing storage services to Europe.

So and then reducing I mean normally in a country like Ukraine if you were going to come from the EU into a non EU state to store the gas and then take it out again and bring it back in terms of customs duties and all of that mess. And you know all the customs documentation would have to go through plus all the tariffs entry and exit and then into storage and out of storage. You would never do it in the past nobody ever did this. So what they did is they streamlined all this. They said if you're coming into storage and going out it's a customs free transaction and we'll give you a very special tariff for entering the Ukrainian system and exiting again and for good storage tariff. And so that became a big source of additional storage in 2020.

And in the summer of 2020 actually the European gas market needed storage as never before because prices were LNG from all around the world was coming into Europe and there was nowhere to put the gas in fact so it was it was huge for the European gas market really integrated Ukraine much more firmly than it had been with the European gas market definitely increased Europe's rather Ukraine's supply security. In terms of revenue it won't make up for the lost revenue. Now I should say that in this agreement I mentioned 2019, Gazprom agreed to a five year contract wherein for 2020 full year through the end of 2024 it guarantees to ship a minimum amount of gas or it has been paid for capacity and must pay for capacity to ship a minimum quite substantial amount of gas through the Ukrainian system. So this revenue risk if you look at it today really comes up after 2024 not immediately.

Hill: Okay. And regardless Ukraine is strategically important to EU gas supply whether Nord Stream 2 get finished or not do to that storage component.

Lauren: Yeah that's right It's important and then it's a market I mean it's really part of the European gas market now so and Europe because of its membership in the energy community the EU institutionally, it's not an EU member state but from an energy gas point of view it's kind of part of the part of the club by taking on the rules and regulations that it would in energy that it would have to take on if it were actually an EU member which is what the energy community is.

Hill: Okay. So we've talked a little bit about Gazprom and the obvious importance to it's supposed strategy envisions, are other companies getting involved or call it trade groups representing types of companies in terms of what Nord Stream 2 may or may not mean to them whether it be just thinking out loud some of the LNG re gas folks within Europe who might want to scourge any pipeline or even some [indiscernible] [00:26:54] of the upstream producers in gulf coast US sure will be might be looking for an avenue for their natural gas.

Lauren: Sure. Do you know there is a perception in Germany and in Europe to some extent that the sanctions gets [indiscernible] [00:27:09] just because the US wants to sell LNG into Europe and I think during the Trump administration, since clearly Donald Trump did like selling US products and like using political levers to do that even though he didn't do the sanctions they really done by Congress. But that fed into this this perception and in fact in previous discussions between the German government and the US Government some leaked documents that were published in Germany a couple months ago made clear that Germany as part of the discussion between the US and Germany, Germany was saying well look what we're doing to facilitate the construction of re gas terminal in Germany which will open up a new opportunity for US LNG shipper. So the Germans certainly thought that that was part of part of the game, frankly as I've described I think this is really driven much more by strong desire to back Ukraine. Ukraine being very active in Congress and lobbying for this. And then the general negative feeling for all the reasons we know against Russia particularly at the level of Congress.

Hill: Okay. So I'm going to come back to the second to the Detroit Pistons Rasheed Wallace is one of my favorite players and this famous for his quote ball don't lie which is basically actions speak louder than words, as we're looking at Nord Stream 2. What are the ball don't lie kind of indicators that we should be watching, where can we expect action and or progress to know that there is a catalyst for either for the pipeline completion or the pipeline in a sense of ball don’t lie?

Lauren: Yeah. Well first of all the pipelines being built. So whatever has been done with the sanctions there's different vessels in there it's much more slow but the pipe lay is proceeding and I'm not sure exactly what besides very unexpected action from some quarter would stop that. So at this point I think probably we can expect that the pipeline will be completed and then it becomes a question of whether it would be would start to operate and there gets quite complicated to be certified and to operate a number of steps need to be taken to comply with the European gas directive that don't appear to be have taken yet. So you could have sort of some breathing space even without a formal German moratorium some breathing space between the completion of the pipeline maybe in a couple months and then any gas actually flowing.

And then you have I think this this bilateral discussion between the US and Germany. The Biden administration has been very clear and Joe Biden was clear when he was vice president that the line they say is that this pipeline is a bad idea from the Biden administrations perspective. But at the same time everyone understands that particularly in the context of trying to rebuild the relationship with Germany which was damaged during the previous administration. I think Germany has made clear that this this is not a small issue. If you use these sanctions to impose, set aside Nord Stream 2 that imposing policy on us using the dollar clearing is not acceptable. So they're trying to find a way around that. And I think one thing to watch for is could there be some sort of since really the key from the US point of view not from the rhetoric and the title of the sanctions bill in Congress but from the point of view of the administration and the key is Ukraine and supporting Ukraine.

So can somehow Ukraine get something get something out of this can Germany make some commitments to Ukraine. Can Germany convince Russia to make some other commitments to Ukraine in relation to gas transit beyond 2024 or something like that. So I think that's where a lot of the game has ever written a paper about this recently for our clients. And I think here a lot of the focus is on the energy transition in Ukraine and really the power sector. And there's a story there is interesting. Ukraine in the last few years has had tremendous boom of solar and wind investment into Ukraine from local capital from foreign capital. And they from very low levels built up quite a significant renewables. Why, because they had a law with very high feed in tariffs and at a certain point they sort of looked in the thought the current government said these feed in tariffs are not sustainable. So they've been in the process of trying to renegotiate those or they don't want to just impose and change the terms on all these players.

So there's been this ongoing process where they reached signed an MOU with some of the generators but not others etcetera, etcetera to reduce these feed in tariffs which they call unsustainable. So whatever I don't know I don't really have a position on what they should have done and this and that. But what's clear is that is damaged dramatically. So the investment has almost completely dried up. And that's not good because Ukraine is 50% of its generation comes from nuclear and those are aging nuclear plants. So I'm not a specialist on how long you can extend the life of these plants. But generally speaking if you look at the numbers a lot of this nuclear capacity should be retired in the second half of this decade. And you really need that renewables to ramp up because nobody wants Ukraine to be able to the new gas plants or heaven forbid new coal plants just made its energy needs or to start importing a lot of electricity from somewhere. So I think if somehow through cooperation between the EU. They should be doing this anyway. Not related to Nord Stream 2, but that can kind of be a spur and an extra incentive to get cooperation between the US Germany the EU to reboot to start up again this investment by I don't know by managing some of the risk or providing some sort of financing or financial guarantees to kick start reboot to renewable business in Ukraine.

Hill: It is that then maybe the connection to the financial sector and all of this we're talking about before we started recording just about European gas markets and the idea of this podcast being to focus on the intersection of finance and energy. Is it less about Nord Stream 2 and more about I guess the diplomacy around Nord Stream 2 and what opportunities might get created for others as the party see compromise.

Lauren: Sure. Well that I mean that that I think is the best case scenario if an offer could be acceptable to everyone if some sort of arrangement could be acceptable to everyone where the US doesn't sanction Nord Stream 2 which means the project will be built but enough is done so the Ukraine comes out of it feeling positive and here I think you can see different from a purely geopolitical point of view. I think the Ukrainian response is no, we must stop this project from gas transit revenue point of view. As I said there's not an immediate issue but after 2024 there could be you're probably not going to make up for that certainly in this in this time frame. But if you're the Minister of Energy of Ukraine the acting Minister of Energy right now he sees the crisis and he's talked a lot about this and he knows that they need to fix the problems quickly and he's proposed carbon tax and a lot of other things.

And so yes I think you could the best case outcome would be mobilizing a lot of backing so that capital can flow into wind and solar in Ukraine. And I should mention they've got a lot of land for wind and solar, that the resource isn't that much different from countries in south eastern Europe but there's more land, there is more free land available and the permitting and all that stuff appears to be to be easier. So if that could happen not based on what many people would say now was an unsustainably high feed in tariffs. So fantastic feed in tariff great numbers but maybe in the back of your head there's some there's some risk here. Is this too good to be true from moving that to a sustainable feed in tariff. And to the extent you perceive a high risk just because of the recent history of the investment climate [indiscernible] [00:35:26] there, if that can be backed up by the EU or Germany or the US or some combination of government bank type backing then that would be tremendous. And you would I'm sure restart that that solar and wind boom in Ukraine and then and then and then start to move into hydrogen which is another thing Ukraine is excited about.

Hill: Okay in a longer conversation for another day hydrogen. So maybe just to wrap it up what in terms of timing when should we expect this to be in a sense behind this I mean I know Germany has an election coming up in September that, do we expect any action or in fact non-action between now and September or is this something that Angela Merkel is this something she wants to kind of leave her thumbprint on.

Lauren: I'm sure. Well I'm sure this is not at the top of her list, but yes there are elections September, she will be out of office. There will be a new could be a new coalition. It's not clear the Greens are doing very well in the polls right now which could have some implications. But I think in terms of what's going to happen you're going to have continuing dialogue between us and Germany. There's a lot of talk now that the US is going to point a special envoy just for this issue which I think is important. That the details in terms of energy market and energy regulation and the legal stuff are very, very complicated. And I think I sort of feel very bad for a sort of someone in the State Department who gets charged with this who why on earth would they know all this stuff.

They don't, their expertise lies elsewhere and so I think it would be helpful to have someone appointed that really knows the issues because they know them well on the German side because it's been doing it for years. And then have those discussions lead towards some kind of accommodation of the type I've been describing. But in the meantime I think you probably see at least one pipe lay finished and then a whole bunch of rather dull regulatory stuff about when and how the pipeline could be certified and then commissioned. I should note by the way that the big, the last big thing remaining in the sanctions the US sanctions that I haven't mentioned is that these technical certification companies are saying part of the sanctions. So and that's not they're not 50 companies around the world doing this is the business that DNV and companies like that. And so nobody really knows if that's going to be if there's this an end run available around that or if that's going to actually prevent technical certification which will prevent insurance of the pipeline which will prevent it from operating. So that's another thing to throw into the mix there. So I think pipeline complete a bunch of complicated relatively boring stuff about whether it be able to start up and begin operations and that's not going to happen soon.

Hill: So we're expecting some form of resolution at least on the pipeline piece this calendar year and or before the Germany elections?

Lauren: I hesitate to make predictions. But I think that, I think that probably pipe lay I don't, it's not out of the question but I guess I see pipe lay for as being completed and then without an explicit moratorium just for other reasons these sort of regulatory reasons the pipeline not starting up until there's some sort of agreement has been reached. That's not going to be so easy I'm very hesitant to predict that this will all be resolved and everyone will have moved on by the end of this calendar year. But that's certainly one scenario and then I think once the pipeline begins operating particularly if sort of the guarantees of transit through Ukraine at a certain level have been sort of confirmed and strengthened and all of that then I think people in a few years looking just at the gas market could be thinking why were we so concerned about this. Because in fact everything is more or less the same as it was before.

Hill: Same as it ever was.

Lauren: Yeah.

Hill: All right. Well thank you. This has been a fascinating conversation from my end and I'm hopeful everyone else's who is listening enjoys it and let's come back I'd love to continue conversations on well maybe continue conversations on this depending on where [crosstalk] [00:39:47] where things go.

Lauren: I hope not I'm so sick of it. I'm so sick of it [crosstalk] [00:39:51] adjustment tax that's the next exciting issue in Europe.

Hill: All right. Well there's plenty to talk about it in terms of European energy. So look forward to you coming back and we'll talk again then. Thanks you so much.

Lauren: Thank you Hill real pleasure, thanks a lot.

Hill: Thanks.

Lauren: Bye.

Female Speaker 1: To read additional insights from our team of experts visit our blog at www.ishmarkit.com/energyblog. You can also find our experts on social media by searching for S&P Global energy on either twitter or LinkedIn. Have a topic idea or want to send us feedback email our podcast team at Energy Cents at ihsmarkit.com. Male Speaker 1: This podcast contains information and insights copyrighted by S&P Global. To learn more about S&P Global Energy Solutions, visit ihsmarkit.com/energy, that’s I-H-S M-A-R-K-I-T.com/energy.