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Nordstream II gas pipeline in deep water

Jo Harper
November 14, 2017

As the EU executive deliberates on the controversial gas pipeline planned to link Russian gas supplies with German consumers, many believe Nordstream II could still fall victim to the EU's energy policy.

Worker at the Portovaya booster station
Image: picture alliance/dpa/A. Kudenko

Poland, the Baltic nations and other EU member states have long argued the pipeline runs counter to European energy objectives, which are designed to diversify energy supply, reduce reliance on Russia and keep gas flowing through existing pipelines in Ukraine, which depends heavily on transit revenue paid by Gazprom.

The planned pipeline would complement the existing one with two extra lines and double the amount of gas transported from Russia to Germany. They would run alongside the existing Nordstream pipeline and are designed to carry 55 billion cubic meters of gas a year and be operational by 2019. The cost of the 1,200-km (746-mile) pipeline has been estimated at €9.5 billion ($10.3 billion) and construction is scheduled to begin next year.

Read also: Planned Nordstream extension stirs discontent in Brussels

The pipeline would concentrate almost all Russian exports to the EU in one route and, as critics say, make it easier for Russia to cut off clients in Eastern Europe or bypass their transit networks.

Polish anti-trust office UOKiK in July declined to approve the notification in Poland of a joint venture to construct and operate the new pipeline on the grounds Nordstream II would restrict competition in gas supplies.

Poland's foreign minister, Witold Waszczykowski, hinted last month he believes the pipeline is another way for Brussels and Berlin to punish his country for its insubordination. "The position of the EU and its individual members [on the project means Poland is] dependent on unstable and politically motivated Russian gas supplies," Waszczykowski added.

Testing EU unity

"At the center of the debate is a project that sows divisions between EU member states, jeopardizes the energy interests of some of them and, by extension, the energy security of the EU as a whole," Aleksandra Gawlikowska-Fyk and Bartosz Wisniewski of the Polish Institute of International Affairs said.

The Polish government's Konrad Szymanski wrote in The Financial Times recently that Nordstream II is a test of European unity.

"Together with eight other EU member states (the Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Romania and Slovakia) and with the tacit support of a couple of others, Poland has opposed Nordstream II since it was first announced by Gazprom in 2015. It undermines European solidarity and the EU, the EU's flagship project," Szymanski wrote.

Read also: Eastern EU nations complain about pipeline deal

He believes the economic arguments for Nordstream II were always questionable, especially considering overcapacity on existing supply transit routes from Russia to the EU.

Given Europe's dependence on Russian gas and the damage the project would cause the Ukrainian economy, "the political motivations behind it seemed obvious," he argued. "A project that previously appeared merely controversial now looks like a Trojan horse capable of destabilizing the economy and poisoning political relations inside the EU," he added.

Nord Stream gas pipeline

Berlin in a spin

"While the proposal needs to be agreed by EU member states, it would be awkward for Germany to oppose it and undermine its commitments for achieving Energy Union," Annika Hedberg, a senior policy analyst at the European Policy Centre (EPC) told DW.

"CEE is vulnerable when it comes to energy security, and with a long history with Russia, has no illusions about the latter's ability and willingness to use energy as a political tool," Hedberg said.

Nordstream II was among the most controversial projects of Germany's grand coalition of Christian Democrats CDU and Social "emocrats SPD, which ended after four years in September.

Opposition to the pipeline is also strong among parties to the possible Jamaica alliance, Der Spiegel reported.

Senior politicians from the CDU, FDP and Greens want to rethink Nordstream II.

"The project is slowing down renewable energies in Europe," said Green vice-leader Oliver Krischer. "And it only increases the dependence on autocratic President Vladimir Putin."

FDP politician and former Minister of State at the Foreign Office, Michael Link, has called for a review of the project. His party wants to promote a common EU energy policy and reduce dependence on Russian energy.

Read also: Nordstream II financing takes shape

"Both goals fit badly with the Nordstream II project," Link said.

The CDU foreign minister and former chairman of the Foreign Affairs Committee, Norbert Röttgen, shares this critical opinion on Nordstream II.

"The new coalition should not look at the issue from the perspective of individual companies or even individuals," he says.

The SPD, meanwhile, supports the plans. In the previous government, they were driven mainly by Foreign Minister Sigmar Gabriel (SPD) and ex-Chancellor Gerhard Schröder is the chief executive officer of Nordstream II and also chairman of Nordstream AG's shareholder committee, which is responsible for Nordstream 1.

"Germany is already the EU's largest importer of Russian gas," Hedberg says. "And against the backdrop of Russia's invasion of Ukraine and annexation of Crimea, there are fears that increasing the share of Russian gas in Germany to 60 percent could give Moscow greater political leverage over Germany and thus the EU as a whole."

She adds that there is also a legal dimension to this. "It can be argued that under customary and public international law the EU and its member states are obliged not to facilitate an annexation or the waging of war. Nordstream II supports, arguably, Russia's military objectives, by contributing to its efforts to reduce gas transits via Ukraine and isolate the country,' she says.

European Commission to clarify

The European Commission said it will clarify legislation governing import pipelines from countries outside the EU's internal market.

Existing legislation — the Third Energy Package — applies to gas pipelines like Nordstream II, but the Third Energy Package states that companies can't majority-own supply and distribution assets and must give competitors access to their pipelines. The Commission must also rule on whether offshore and onshore parts would be subject to EU energy laws.

The laws have already seen Gazprom abandon an earlier project, South Stream, designed to bypass Ukraine by shipping gas to Bulgaria.

Pipe dreams?

In August, the subsidiaries of several Western companies — Eon, Engie, OMV, Shell and Wintershall — decided not to participate in Nordstream II.

The consortium led by the Russian state-owned gas monopoly Gazprom was established to design, finance, build and operate two additional strings of the undersea gas pipeline between Russia and Germany.

They also withdrew their application for merger approval, submitted to the Polish competition protection authority in December.

Those pledging funding for the project included Germany's Uniper and BASF subsidiary Wintershall as well as Engie, OMV and Shell, with Gazprom remaining the sole shareholder of the project company.

Nordstream pipeline
The Nordstream gas pipeline is a thorn in the side of Poland and other EU member countriesImage: dapd

But leading Russian banks are currently hampered from raising capital on international markets due to EU and US sanctions after Russia's invasion of Ukraine.

Gazprom has also become a less attractive borrower — the firm's market value has shrunk from over $350 billion in 2008 to some $50 billion due to low energy prices and poor management.

The pipeline also needs to be approved by regulators in Denmark, Finland and Sweden because it is to pass through their maritime zones.

In denial?

"For Gazprom and Nordstream, the project is ongoing, and ambitions haven't changed," Hedberg said. "However, the pressure is enormous. The project divides the EU. The European Commissions and European Parliament have strongly opposed the project. A number of EU member states oppose it for political and energy security reasons."

Read more: Report reveals billions in EU fossil fuel subsidies

A Nordstream II spokesman played down the problems facing the project, reiterating that €4.5 billion of contractual commitments (generating 30,000 jobs in the EU) had been made, Jens Müller, Media Relations Manager at the company told DW.

The US enters the equation

On July 25, the US House of Representatives passed a bill which will tighten existing sanctions against Russian companies and individuals.

The bill states that Russia is using energy exports to coerce its neighbors and takes specific aim at Nordstream II. According to the bill's authors, the Gazprom-led project has "detrimental impacts on the EU's energy security."

Wilbur Ross, the US commerce secretary, has suggested Europe correct the transatlantic trade balance by buying more US liquid natural gas (LNG).

Since February 2016, about 1billion cubic meters of US natural gas has reached Europe, equivalent to 2 percent of Nordstream II's planned capacity.

Baltic states oppose Nord Stream 2 pipeline