Security & Geopolitics

Nord Stream 2: (Energy) Politics is a Dirty Business

In the words of Maroš Šefčovič there has never been a commercial project debated as much as the Nord Stream 2.
It is hard to disagree with the Slovak European Energy Commissioner, as the Nord Stream 2 project has generated a rather heated debate.

Nord Stream 2 in brief

In 2011 the first Nord Stream offshore pipeline became operational, bringing 55 bcm/y of Russian gas directly through the Baltic Sea to Germany. The planned Nord Stream 2 is to follow the same route, doubling the capacity of the existing gas connection. The designed shareholders are Gazprom (50%), E.ON (10%), OMV (10%), Shell (10%), Wintershall (10%) and ENGIE (10%).

Fervent supporters…

On one side of the debate there are the fervent supporters of the project. Among these there are the energy companies involved, Germany along with other central EU countries and of course Russia, with Gazprom at the forefront.
Through the construction of the Nord Stream 2 Gazprom will have the chance to strengthen its presence in Europe through increased gas supply.
Already in 2014 the EU imported 67% of its natural gas consumption, equal to 257 bcm. With the twin pipelines importing in total 110 bcm it is easy to understand how much of European energy security would be depending on Russia[1].

A purely commercial project

One of the arguments brought by Russia in favour of the project is represented by the fact of bypassing Ukraine.
The pipeline is expected to be operational in 2019, that coincides with the expiration of the agreement for gas transit between Russia and Ukraine. That is no coincidence, given that transit fees amount to $ 2 billion a year and according to Gazprom the costs of refurbishing the Brotherhood pipeline would be equal to € 9.5 billion.
The detractors of the project consider that figure highly inflated. According to the World Bank the costs of renovating the Ukrainian transit are estimated to be between $ 2.5 and 5.5 billion.

The answer to European energy security concerns

The second argument brought by Russia in support of Nord Stream 2 is related to the energy security dimension of the European Union.
Ukraine is presented as an unreliable partner and is accused of stealing gas and not being able to maintain the pipeline in adequate conditions.
Besides the ability of Ukraine to act as a reliable partner, unsettled political tensions between Russia and Ukraine could eventually endanger the stability of supply to Europe.
Already in 2009 Russia did not hesitate to cut off supply to Ukraine, causing Slovakia to open reverse-flow pipeline to deliver gas to Ukraine.

A second argument brought by Russia is that Nord Stream 2 would satisfy the gas import needs of the EU, that are set to increase in the future, mainly due to the decline of domestic production. Since the EU has no other reliable alternatives – because the Southern Gas Corridor is going to bring just 10 bcm/y of gas at best and no additional import is concretely planned from the Middle East and North Africa, Russia considers itself as the only reliable solution to the EU future import needs.

…And fierce opponents

On the other side of the debate there are those strongly opposing Nord Stream 2.
Eastern European countries see a stronger Russia in Europe as an undesirable outcome. Ukraine does not want to loose much needed transit fees and many EU countries reckon that the pipeline is not coherent with the EU objective of diversification of energy sources and routes.
According to the detractors of the project it is unnecessary. Existing pipelines in Europe have enough spare capacity to guarantee future gas supply. Reverse flow capacity is constantly increasing allowing greater flexibility in deliveries and lower waste.
Many argue that the EU is committed in leading the clean energy transition, and this is not consistent with the construction of a new permanent infrastructure for gas import.

Political motives

Many countries and also European institutions demonstrated rather sceptical towards Nord Stream 2, in their eyes animated by political motives.
It would not be the first time that Russia used gas as a political means; it happened with Ukraine in 2009, with Turkey at the time of the hijacking of he Russian jet, and again when the EU was discussing sanctions for the annexation of Crimea, and Russia threatened to restrain supply.
The Nord Stream 2 would serve a double purpose to Russia.
On the one hand it would deprive Ukraine of transit fees and make the Ukrainian route unnecessary.
On the other hand it would increase EU energy dependence on Russia, thus making it stronger and more powerful on the European soil.

Legal void and international sanctions

Currently the Nord Stream 2 is facing two main obstacles of legal nature.
The first is the alleged incompatibility with the EU’s third energy package that bars energy producers from owning pipelines.
This would be the case of Gazprom that however claims that this argument does not apply to the Nord Stream 2 as it is build offshore. Russia brings the case of Greenstream to demonstrate that undersea pipelines are not part of the internal market.
The Commission conceded that Gazprom might be right, and to avoid the risk of Russia operating in a legal void, the council will decide in autumn 2017 whether to authorize the Commission to negotiate with Russia a specific legal regime.

Another obstacle is represented by the possibility of economic sanctions imposed by the U.S. against Russia, and directly targeting the energy sector.
The possibility of these sanctions, if implemented, to hinder the realization of Nord Stream 2 was at the root of Germany fierce opposition.
In fact, with the new pipeline, Germany would buy gas at a cheap price, to resell it to eastern European countries using reverse flows.

Much is at stake

Far from being a purely commercial project, Nord Stream 2 seems the means for Russia to weaken one of its enemies and strengthening its presence and power in Europe.
While European objectives couldn’t look more distant to this project, some EU member states are pursuing their individual interest over the Union energy goals.
The next few months will be decisive in demonstrating which one of the two factions will gain the upper hand.