Nord Stream 2: Strategic Implications for the European Union

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by Robert Swanson

nord-stream-2The proposed “Nord Stream 2” natural gas pipeline is one of the most controversial projects of post-Cold War Europe. Since the start of the project’s study phase in 2011, it has divided the EU between north and south, and east and west. It reveals the tenuous position of the EU following the resurgence of Russian intransigence under President Vladimir Putin: a beacon of political liberalism forced by necessity to rely on energy from an illiberal, increasingly hostile, and authoritarian state.

Background

Nord Stream 2 would mirror the existing “Nord Stream” pipeline, commissioned in 2011, almost exactly. The two proposed landfall points in Russia are the Soikinsky and Kurgalsky Peninsulas, both of which are close to the Estonian border. The German landfall for the expansion would be in the Bay of Greifswald, the same location as Nord Stream. The pipeline’s Baltic Sea route would traverse the Exclusive Economic Zones (EEZs) and/or the territorial waters of Finland, Denmark, Germany, and Sweden, which would need to give permission for the project’s construction.

Nord Stream AG, the Gazprom-dominated consortium that operates the existing Nord Stream infrastructure, proposed the expansion project in 2011. It noted the EU’s current and future needs for natural gas and claimed the expansion would increase the annual capacity of the infrastructure to 110 billion cubic meters – double the current 55 billion cubic meters capacity of Nord Stream. The project was cancelled in January 2015 due to EU concerns about Gazprom gaining a more dominant position over supply and infrastructure in Europe’s gas markets. After a June 2015 agreement brought multiple Western gas companies on board, including Royal Dutch Shell, OMV, and E. ON, the project was revived.

As few EU member states have large supplies of natural gas, geography and economic necessity allow Russian energy giant Gazprom to enjoy a dominant market position. In the Baltic states, Bulgaria, and the Visegrad nations (the Czech Republic, Hungary, Poland and Slovakia), it holds dominant positions in gas supply even though efforts directed at diversification are starting to alter this picture. In Western Europe, pipeline routes from Scandinavia, Britain, and North Africa, as well as local supply in Germany, ensure that there is more diversity of supply. But among Western Europe’s largest economies, Germany and Italy import significant portions of their supply from Gazprom – 45% and 35% respectively.

The main natural gas pipelines in Europe, moreover, are owned and operated by Gazprom, either directly or through consortiums. Approximately 19.5% of total EU natural gas imports, or almost 50% of all natural gas it imports from Russia, flows first through the Gazprom-owned Soyuz and Brotherhood pipelines in Ukraine, with the remainder going through its Nord Stream, Yamal-Europe, and Bluestream pipelines.

As the majority of Gazprom’s shareholders are entities of the Russian government, Gazprom is effectively an economic and political tool of the Kremlin. As a result, all EU foreign policy positions concerning Russia, including but not limited to sanctions – other forms of economic pressure, political pressure, and continued EU expansion – are complicated by the fact that Russia holds significant leverage over the economy and livelihood of the EU. While this leverage has diminished due to the EU’s construction of pipeline interconnectors with reverse-flow capability, historically low gas prices, and Gazprom’s inability to access the Chinese market until 2018, it remains potent.

Support

Aside from Gazprom and its co-investors, the largest source of support for Nord Stream 2 comes from the German government. It has broad support in the Bundestag, and support from Chancellor Merkel and former Chancellor Gerhard Schroeder. The latter is now the chairman of the board of Gazprom. Chancellor Merkel publically defended the project on multiple occasions, calling it a “commercial project” of “private investors,” suggesting that it should be off the table when discussing European energy security.

Dissent

Donald Tusk, the president of the European Council, has spoken out against Nord Stream 2 on multiple occasions. He noted that the project “does not help diversification, nor would it reduce…energy dependency,” and called on the EU to “confront” Russia’s near monopoly on gas. In the European Parliament, the center-right European Peoples’ Party, the largest bloc in the chamber, recently noted the pipeline’s “detrimental consequences for the gas supply in Central and Eastern Europe” and the danger it poses to the EU’s efforts to reform bordering states through its Eastern Partnership initiative.

Other critics highlight the project’s lack of concrete economic benefits. Maroš Šef?ovi?, the European Commissioner for Energy Union, pointed out that Nord Stream runs at only 50% capacity. The U.S. State Department’s Special Envoy for International Energy Affairs, Amos Hochstein, called Nord Stream 2 a project with little real economic significance that only enhances “the Russian narrative completely from all aspects…and it creates just the chasm [the Russians] want in the middle of Europe.”

A large point of contention is Germany’s embrace of Nord Stream 2 at the expense of the cancelled South Stream project. The cancelled pipeline would have run under the Black Sea from Dzhubga on the Russian coast and through Bulgaria and the Balkans, ultimately terminating in Austria and Italy. It would have increased gas deliveries to Central and Southeastern Europe, but was ultimately cancelled by Russia after the EU expressed concerns about the monopolistic control of supply and infrastructure by Gazprom. While Nord Stream 2 was cancelled because of the EU’s opposition on similar grounds, Gazprom’s partners seem to have partly overcome these concerns. Pro-Putin and anti-Putin politicians alike have found common ground to criticize the EU for its indecision on the project.

Strategic Implications for the EU

While Nord Stream 2 would increase natural gas deliveries to the EU, the likely motives behind the project would negate any medium or long-term benefits. Gazprom, and by extension the Russian government, would gain two new and valuable forms of leverage over the EU with the completion of the project.

First, the project would breed dissent within Europe on geographical fault lines. Only Germany stands to gain from the project with the increased supply capacity. Central and Eastern Europe would lose transit fees, and potentially experience  decreases in supply, as Gazprom would likely shift vast amounts of natural gas from current continental routes to the Baltic. These developments could prompt these states to strike energy deals with Russia on their own, further undercutting the solidarity of the EU.

Also at stake for Germany is its commitment, through NATO, to Eastern Europe. Germany’s commitment to uphold NATO’s Article 5 collective defense provision is already shaky with 58% of the German public opposed to using military force to defend allies. If Germany should push forward with the pipeline, it would further diminish the credibility of its commitment to the alliance. With Eastern Europe facing Russian military pressure in the east, and German ambivalence to the west, the cohesion and future of NATO would be undermined.

Second, the project would serve Russia’s strategic objectives in Ukraine, and possibly other transit countries. With the “hot” aspect of the war in an effective stalemate, Russia would gain the means to weaken Ukraine’s government and its ability to resist Russian influence. Ukraine is currently embroiled in a pricing dispute with Gazprom, and previously diverted gas illegally from the pipelines in response to Gazprom crackdowns. Should Russia find another conduit for transporting gas to the EU, this limited leverage over Russia and $2 billion in transit fees would disappear.

Nord Stream 2 imperils the very core of the EU’s legitimacy as a common institution. Its economic contributions to the EU at-large would be negligible and likely amounts to a thinly disguised geopolitical calculation by Moscow to divide the EU, diminish the security afforded to it by NATO, and attain greater influence over Ukraine. By removing the prospect of Russian infiltration via natural gas, the EU would sustain its already limited ability to oppose Russian aggression from Eastern Europe to the Caucasus.

Robert Swanson is a Transatlantic Security Analyst at the Streit Council. Photo credit: Nord Stream 2

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