Is The Nord Stream 2 Pipeline Bad For Europe?

The European Commission is contemplating new legislation that could create another obstacle to the construction of Russia’s Nord Stream 2 gas pipeline. The 1,200-kilometer pipeline — planned to transfer natural gas directly from Russia to Germany without transiting through Ukraine — has been on hold since 2015 over concerns about the European Union’s dependence on Russian energy.

Now, the European Commission is considering requiring all import pipelines entering EU territory to abide by the bloc’s regulatory rules. That would pose a serious challenge to the pipeline project, which is far from compliance with these regulations.

The pipeline’s increasingly uncertain future would be a win for its opponents — including European Council President Donald Tusk, who believes Nord Stream 2 is not in the EU’s interests. Last year, then U.S. Vice President Joe Biden also termed Nord Stream 2 a “bad deal” for Europe.

Hromadske spoke with Christian Egenhofer, a Senior Fellow at the Center for European Policy Studies, about the issues at play over Nord Stream 2.

The European Commission has recently proposed to change EU legislation because of Nord Stream 2 Project. What changes would take place and does it mean that the EU has realized the risks of the projects and the need to stop it?

Let me start with the second question. You can argue whether there’s a risk or not and in the EU we have two different schools of thinking. One says we will depend too much on Russia, which causes some security issues and it will also undermine the stability and the revenue source of Ukraine. While others say it is good to have trade because then you speak and as long as you have commercial relationships it’s usually good for stability. And actually, the Russian gas is helpful and it comes into a very liquid market, which is Western Europe, and actually there is no problem. So we have two different views that are not reconcilable and this is also where the European Commission is trying to find some solution out of this. Now what this proposed, it’s important to see that this is a proposed change to the third package means. It means that certainly for the future, we will not have these kind of issues that there are different laws applying to different pipelines, depending whether they come from the south, west, east, or north. So that will be harmonized. Now whether this will actually work in the end for Nord Stream 2 is still an open question. It depends in the end on the outcome from negotiations or discussion on this package or proposal by the European Commission. You can imagine that these discussions will continue for quite the long time — decision-making processes take time. And also it will all depend on finally what will be in the agreement, and you imagine that you can find a lot of compromises or reconcile different positions, by changing definitions what is existing, what is future, and this kind of stuffs. It is a proposal but the final outcome may look very different.

Besides that, what is the European Union to reduce its dependency on Russian gas and how effective are their efforts?

Let me start a bit differently. There are some member-states saying we need to reduce the dependence on Russian gas. Other member-states have a different view. I think there is something to be said about this. The Russian gas from Nord Stream 2 and Nord Stream 1, as well, goes into the Western European market. And that Western European market, which makes up 80% of the European gas demand, of the ED gas demand, that gas goes into a very liquid competitive market. There is competition with Norwegian gas. There will be competition with the US, Qatar, or wherever you want, and there is competition with various North African sources and other sources. Now we have also the gas competition, so the gas from Nigeria is competing with the gas from Algeria, which is competing with the gas from Russia, which is competing with the gas from Norway. So the Russian gas will find its share if it’s competitive. The moment Russia is playing games on this, obviously people will just say: ‘We will take the other gas.’ You can’t have a question whether there is a gas security issue in the western side, no. The differences in the eastern side of Europe, where you have a lot of bilateral—more or less—bilateral relationship between Gazprom and national gas companies in these countries where there is no alternative source. The moment you have alternative sources also in the east, which is going to come by the CESEC process, which is the sanction on Eastern European gas connectivity initiative. Or by what is currently happening in terms through the gas interconnectors, which are being designed and built.

And how has German support for project changed since the Social Democrats, who are previously the junior partner of the Merkel-led Coalition, went into the opposition?

Let me say, there is always this assumption that this is a German government, Mrs. Merkel and the Social Democrats, and I guess you refer as well to Gerhard Schröder’s support of this. But when you look at what was said, so far there was no explicit statement by the Chancellor, if you really want, what the Chancellor was saying that this is a commercial project, which you can accept or not accept, but that is what’s she’s saying. And it brings gas to Germany — cheap gas to Germany — and it makes Germany more secure and as Germany is interconnected with all the other countries in the EU, that gas once it’s in Germany flows freely across the borders, also to Ukraine. And this is a good thing; it’s commercially viable, and it’s not a bad thing for security of supply.

Obviously, such big projects will not be done if the government is opposed to it. Obviously the German government is not opposed to this. And to what extent the Social Democrats have been actually supporting this is also not that clear. And that is interesting now. What the new proposal by the Commission does, it asks, it requires, it will require from the German government in the future to give that gas — if adopted. If the proposal is adopted, it will require from the German government to give the pipeline an exemption and that means that the German government will have to decide explicitly and saying, ‘We want it, therefore we give this exemption, so we make a legal move, and if you don’t want it, we don’t give it.’ So the German government will have to take a decision and it will not be able to hide behind the fact that this is a commercial project, we don’t care because we are a free-trading nation and if people bring gas on the basis of free-trade into the market, we agreed to this. And that may trigger — it’s very difficult for me to say — it may trigger a debate in Germany because there are also people in Germany opposed to that project. It’s not something like the whole German public is aligned behind this project.

But still there is the other side of the problem and this is still the question in Ukraine, why is Germany, who supports the sanctions against Russia, still in favor of the Nord Stream 2 project? The route passes over Central-Eastern Europe, and could leave Ukraine as a gas-transit country without earnings.

Of course there is an issue of the earnings and let’s be honest, a lot of the debate also from the Polish National Oil and Gas company was about the transit fees earning. So, if you take the logic that this is a commercial project, then of course, the gas will flow where it’s the most economic.  So that is the logic which is inherent if you take it as a commercial project. Yes there will be revenues, which used to be for Ukraine, for Poland, which might be going now to the operators of Nord Stream 2, that is the case. Now whether this creates security issues, that is another point. Will it destabilize Ukraine? We can’t discuss this, I’m not a foreign policy expert. Will it cause problems to Poland? I don’t think so, except that the revenues aren’t coming. And of course, a lot of discussion is about revenue, making money. We import, export and trade gas based on market, which means also making money.

How do American sanctions influence the Nord Stream 2 project? Could the US have a strong impact on that, considering the fact that Russians paid American lobbying companies to discourage the sanctions against Russia?

It is a very difficult field. There has already been the possibility— that would have also been the possibility already by the Obama administration — to put sanctions on this. Now what the new regime, which is in the Senate, has been proposing that this is not just done by the President but it will have to go through the Senate procedure.

So it is not yet clear how this will work. One thing is clear that the US has serious security concerns — the US Senate. What President Trump thinks, we don’t know.

You mentioned it. It’s not yet clear what’s his relationship to the Russian government is, but the Senate may come to the conclusion that they don’t want this project because it creates some security issues. They may also come to the conclusion that we don’t want this project because it might undermine eventually the import and export of cheap US gas, that maybe also the case. But it is very hard to say, at the moment, whether it’s security, whether it’s commercial—probably it’s both. But it’s not clear on what side of the equation in the end it will come out.

/By Tetyana Ogarkova