Can Nord Stream 2 Play By The New Rules?

In 2011, Nord Stream AG, a consortium led by Russia’s Gazprom natural gas company, started looking at plans to build a new pipeline under the Baltic Sea, which would double Russia’s gas exports to Germany.

This, however, proved to be no ordinary international business plan. Since then, the proposed pipeline — called Nord Stream 2 — has proven a controversial project eliciting mixed responses from the European Union. Opponents allege that Nord Stream 2 will become a Russian political tool in Europe.

Now, the project is facing another challenge. Earlier this month, the European Commission (EC) announced that it wants to extend EU gas rules to all import pipelines entering the bloc to ensure they are all managed with the same degree of transparency, efficiency and accessibility to other operators.

The EC stated that “Nord Stream 2 cannot happen in legal void.” But how these potential changes will actually affect the pipeline remains unclear.

Hromadske spoke with Andrii Chubyk, Senior Researcher and Executive Director of Centre for Global Studies “Strategy XXI,”  and Christian Egenhofer, a Senior Fellow at the Center for European Policy Studies, about the future of this controversial gas pipeline.

Pipeline Dream

At a projected 1,200 kilometers long, Nord Stream 2 is set to run adjacent to Nord Stream I. It will have the capacity to deliver 55 billion cubic meters of gas annually to the European Union via Germany.

If built, the pipeline would also compromise Ukraine’s role as a gas transit route to Europe, with transit fee losses for Kyiv estimated at $2 billion. However, many also fear that the project will undermine Europe’s energy security.

Photo credit: HROMADSKE

The new, proposed EU legislation could be a major blow to Nord Stream 2 — if Russia can’t stop or find a way around them.

Chubyk believes Moscow will continue to “make all possible efforts” to implement the project. “They are [taking] all possible steps like speaking with top officials, speaking with companies, proposing to them different benefits and gifts and so on,” he said.

But it’s also not unrealistic for authorities to change their minds on Nord Stream 2. “We just observed during recent years how even the European Commission and Council of the European Union change their minds, their understanding and their opinion about this pipeline,” Chubyk said. “Because at a certain point they decided it’s not in line with European interests to diversify suppliers.”

Egenhofer told Hromadske he expects the negotiations over proposed legal changes to take time. This could mean that the final law will look very different from the proposed legislation. And even if the proposal is adopted in its current form, the German government may choose to exempt the project from the new rules, he added.

German Support for Nord Stream 2

Chubyk believes the Social Democratic Party were Russia’s most powerful instrument in promoting the pipeline within Germany.

“We have to understand that Nord Stream was...discussed with [then] chancellor of Germany Gerhard Schröder and Russian President Vladimir Putin,” he said.

After a 2005 electoral defeat to Chancellor Angela Merkel, Schröder even became chairman of the first Nord Stream project. Then, in 2016, he became the manager of Nord Stream 2.

Photo credit: EPA

But Schröder and his former party, the Social Democrats, are far from the only German or European proponents of Nord Stream 2. Just last week, The Guardian reported that it had seen an email linking the deputy leader of Germany’s Free Democrats, Wolfgang Kubicki — currently also contending for the role of finance minister — to lobbying efforts for the Russian-driven project.

Russia also enjoys support from German companies, who have “quite good...long term contracts” with Gazprom, according to Chubyk.

“Gazprom owns already part of the shares and it’s about companies that operate and distribute gas in Germany as well as some companies dealing with the storage of gas. All together, it makes this industrial lobby quite strong. It works in support of this project,” he said.

Earlier this year Gazprom also signed a deal with five European companies — Germany’s Uniper and Wintershall, France’s Engie, Austria’s OMV and Britain’s Royal Dutch Shell — which will see them fund 50 percent of the project.

But following the recent German elections, the Social Democrats were expected to go into opposition and lose much of their impact on policy making, Chubyk says. He hopes a new coalition will turn its back on Nord Stream II.

Turkish Stream Ahead

Nord Stream 2 would not be the first pipeline facing political obstacles. EU pressure was key to halting the South Stream pipeline only three years ago, after Russia annexed Crimea and moved its forces into eastern Ukraine.

In 2007, Russia signed a memorandum of understanding with an Italian energy company to build South Stream, a gas transit route from Russia through Bulgaria, Hungary, Slovenia and Austria. The project was scrapped in 2014 thanks to pressure from the European Commission.

Photo credit: HROMADSKE

As an alternative, Russia struck up a deal with Turkey to build a smaller pipeline that would transport gas from the Krasnodar region, across the Black Sea, to the Turkish Thrace coast, and then to Europe.

“They started to build the first line towards Turkey, meaning that they will bring, in one year perhaps, around 15 billion cubic metres of gas to be used in Turkey,” Chubyk said.

“Right now Russia is interested in getting support for the second line because the second line is supposed to bring the same amount of gas, already to be available for the southern part of Europe, for [the] Balkan countries and for Italy a bit.”

Energy Independence

Meanwhile, this week Ukraine will mark its two-year-anniversary of independence from Russian gas. However, Chubyk says a combination of energy efficiency and  development of renewable energy sector must be made a priority to promote further energy independence in Ukraine.

Naftogaz reports that it imported 7.1 billion cubic meters (bcm) of gas from the European market in the first nine months of 2017, with private companies buying a further 3.6 bcm of gas during the same period.

“We have to consider quite carefully current assets we have from [the] electricity sector, from [the] nuclear sector, from hydropower and build up very carefully...a reliable strategy of their development because we have to consider, perhaps, next year to go out from coal as a fuel for electricity production,” Chubyk said.

/By Natalie Vikhrov