Nord Stream 2: European energy policy is still a pipe dream

Dimitar Lilkov,
Research Officer,
Wilfried Martens Centre for European Studies,
Brussels, Belgium

Unresolved problems continue to haunt you no matter how hard you try to ignore them. Germany is painfully reminded of this after yet another turn in the never-ending Nord Stream 2 saga. The horrid poisoning of Russian opposition activist Alexei Navalny has put the German government under pressure (both at home and internationally) to rethink its commitment to the pipeline project should the Kremlin refuse to cooperate in the investigation. There is little chance for Berlin to cancel such a large infrastructure project which is near completion and any diplomatic hints that it might do so may be a well-calibrated attempt to test Vladimir Putin`s resolve. However, one thing is certain – the latest developments have shown that the Gazprom-led pipeline is nothing more than a political project with grave implications for Europe`s energy security and uncertain economic gains.

For several years, the construction of Nord Stream 2 (NS 2) has plagued relations between different European capitals and also managed put a strain on the relationship between Washington and Berlin. The project is planned to double the volume of the existing Nord Stream 1 pipeline, with the total volume of both ventures being a maximum of 110 bcm of natural gas per year. Gazprom has pledged to guarantee 50% of the project funding and will be the sole shareholder in the project which is backed by five other European companies. Although technically a private corporation, Gazprom remains owned by the Russian government and is used as an important tool in advancing the Kremlin’s economic and geopolitical interests outside Russia`s borders. The new extension of the pipeline will fortify the Russian Federation as the EU`s top supplier of natural gas – a position which Moscow has exploited in the past by unfair price setting and partitioning gas markets in Central, Eastern and Baltic EU member states. Regrettably, if the pipeline becomes operational it will go against one of the main objects of the European Energy Union – diversification of energy suppliers and reduced dependence on only a handful of third country exporters.

Several European leaders have already objected to the project and its destabilising geopolitical consequences for the energy security in Central and Eastern Europe as well as its clear attempt to circumvent Ukraine as a transit country for natural gas to Europe. A recent European Parliament resolution adopted with an overwhelming majority called for the official halt of the project. There is little rationale for such costly infrastructure given that it will not transport new volumes of gas but will redistribute existing quantities flowing through Ukraine. The European Union has an abundance of already existing gas infrastructure and has committed itself to reducing dependence on fossil fuels in the coming decades. There is a real possibility that NS 2 would become a stranded asset buried below the Baltic Sea in the foreseeable future.

For the time being Gazprom looks set to complete the project, even with a significant delay due to regulatory hurdles and changes in the applicable European legislation. Irrespective of Russia`s military aggression in Crimea, foreign interference in elections and energy blackmail of smaller EU-member states, it seems as if it will be business as usual for Germany when it comes to pipelines. There are at least two main reasons for Berlin`s dogged determination to see the project completed. First, Germany`s pledge to phase out nuclear energy by 2022 and reduce its reliance on coal means that households and industry will register a growing demand for natural gas as a transitionary resource throughout the 2020s. Second, the country is still path dependent on the infamous legacy of the German Social Democratic party (SPD) and political figures such as Gerhard Schröder and Sigmar Gabriel who have committed Germany to this pipeline, regardless of the split it causes between Eastern and Western EU member states and also the betrayal towards Ukraine.

The only plausible scenario for preventing the construction of the pipeline would be the additional pressure from the US – more expansive sanctions from the US State Department might prove painful for current and future investors. Even if the Presidential administration changes after the November elections, the While House will likely keep its determination to prevent the further tightening of Gazprom`s energy grip on Europe.

It is most likely that Germany will not unilaterally cancel the completion of Nord Stream 2 in the upcoming months. The path dependency of Berlin`s energy policy require that the country remain committed to the pipeline even at the cost of going against the interests of many European member states. The wedlock with Gazprom will be reaffirmed and the promise for Europe to speak with one voice on its energy policy will remain nothing more than a pipe dream.


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