A whiff of trouble in the Nord Stream pipeline

What was meant to be an ordinary energy project from Russia to Germany is now a powerful geopolitical tool

Updated - July 06, 2022 12:21 pm IST

Published - December 30, 2021 12:02 am IST

FILE - Pipes are stored in Sassnitz for the natural gas pipeline Nord Stream 2 from Russia to Germany in Sassnitz, Germany, on Dec. 6, 2016. Russia's natural gas pipeline to Europe is built and ready to flow. But not so fast. The Nord Stream 2 pipeline faces a rocky road ahead. First there's statement by the U.S. secretary of state that gas won't flow if Russia launches military aggression against Ukraine. (Jens Buettner/dpa via AP, File)

FILE - Pipes are stored in Sassnitz for the natural gas pipeline Nord Stream 2 from Russia to Germany in Sassnitz, Germany, on Dec. 6, 2016. Russia's natural gas pipeline to Europe is built and ready to flow. But not so fast. The Nord Stream 2 pipeline faces a rocky road ahead. First there's statement by the U.S. secretary of state that gas won't flow if Russia launches military aggression against Ukraine. (Jens Buettner/dpa via AP, File)

It would be considered an ordinary gas pipeline were it not for the controversial nature of the project. Called the Nord Stream 2 , it will spell a direct supply of natural gas under the Baltic Sea from the Russian city of Ust-Luga to the German city of Lubmin, avoiding transit through Ukraine and other European countries. However, the Ukrainian authority has called the project a ‘dangerous geopolitical weapon’. There is also strong opposition from the United States and most of the European countries (except for Austria, Germany, Hungary and the Netherlands). Their concern is that, once operational, the project would render more leverage and bargaining power to Russia while dealing with Europe and its energy market.

Some political commentators share the view that Russia is trying to use Nord Stream 2 as a political weapon to put pressure on European security and ‘undermine the democratic resilience of European institutions’. At the same time, during the St. Petersburg International Economic Forum 2021, Russian President Vladimir Putin dismissed these concerns, saying that ‘Nordstream 2 is purely a commercial project, which is shorter, cheaper, and economically more viable, compared to the gas transit through multiple European countries’. Mr. Putin even went as far as calling opposing views as ‘foolish propaganda’.

 

Mounting complexities

The construction of Nord Stream 2 began in 2015, when Russia’s main energy company Gazprom took ownership of the project’s operator, the Switzerland-based company Nord Stream 2 AG. The project was expected to double the capacity of the existing pipeline, Nord Stream 1, that had been operational around 2011-12. The estimated costs are around €11 billion, with the new pipeline stretching for 1,225 kilometres.

Throughout its short history, the project has undergone a series of sanctions and controversies, morphing itself into the source of contention and political battleground. At the end of 2019, U.S. President Donald Trump had signed a law that imposed sanctions on any EU company that was involved in completing the Nord Stream 2 pipeline.

The Trump administration feared that the pipeline would give Russia more influence over Europe’s energy supply and reduce its own share of the lucrative European market for American liquefied natural gas (LNG). Many European politicians, including then German Chancellor Angela Merkel, were opposed to the ‘extraterritorial sanctions’, stating that they were able to decide their own energy policies without an ‘interference in autonomous decisions taken in Europe’.

 

In July 2021, the U.S. and Germany reached an agreement to allow completion of the Nord Stream 2 pipeline. Besides, the agreement aimed to invest more than €200 million in energy security in Ukraine, as well as sustainable energy across Europe, according to media reports. Earlier in May 2021, the Joe Biden administration decided to issue a national security waiver for the Nord Stream 2 AG, the major company involved in the construction of the pipeline. The main reason was apparently to restore trust and close cooperation between the U.S. and Germany.

Energy security dilemma

According to data from 2015, Germany imported about 40% of natural gas from Russia, 29% from the Netherlands, 34% from Norway, with only around 10% from Germany’s own gas fields. According to a media report, about a quarter of Germany’s electricity now comes from coal, about another quarter from renewables, 16% from natural gas and around 11% from nuclear energy.

The dispute over Nord Stream 2 takes place at a time when Germany has set out a plan to shut down its nuclear and coal power plants, with an objective of gradually moving towards renewable sources of energy. In order to fill the supply gap and diversify the sources, the country plans to build its first LNG terminal to receive gas from Qatar, the U.S., and others.

Also read |  U.S. to waive sanctions on firm behind Russia’s Nord Stream 2

This winter, Europe is facing a ‘perfect storm’ in its energy market, whereby wholesale energy prices have more than doubled in 2021, and there is a limited supply of fossil fuels altogether. Russia is blamed for an intentional decrease in gas supplies to Europe, aiming to speed up the controversial Nord Stream 2 gas pipeline by European Union (EU) market regulators. There is a ‘silver lining’ in the current energy crisis in Europe though, since it could provide additional incentives for green energy investments and production of green hydrogen.

Latest developments

In November this year, Germany’s network regulator (Bundesnetzagentur) suspended the certification procedure for Nord Stream 2. In an official statement it said: ‘it would only be possible to certify an operator of the Nord Stream 2 pipeline, if that operator was organised in a legal form under German law.’ For practical reasons, Nord Stream 2 AG decided not to undergo a complete legal transformation, but establish a subsidiary under German law that would manage only the German part of the pipeline. The involved bureaucracy inevitably means further delays in project commencement as it requires re-submission of paperwork and a renewed certification process. In December, Germany’s energy regulator said it would not make a decision on certifying Nord Stream 2 until, at least, the second half of 2022.

Meanwhile, tensions have been growing between Russia and the North Atlantic Treaty Organization allies, amidst fears of Russia’s invasion into Ukrainian territories and a replication of 2014 scenario. The new German Chancellor, Olaf Scholz, has inherited the Nord Stream 2 dilemma from his predecessor and will have to make difficult choices going forward. Some EU leaders have called for stronger actions toward the controversial pipeline from the government in Berlin, including its possible termination in the event of further military escalation.

Thus, what was meant to be an ordinary energy project has transformed itself into a powerful geopolitical tool, available to every stakeholder involved, and even beyond.

Tatiana Belousova is Assistant Professor at the Jindal School of International Affairs (JSIA), O.P. Jindal Global University, Sonipat, Haryana

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