A series of gas pipelines running between Russia
and Germany is at the center of an international dispute.
It’s called Nord Stream 2, and as its construction nears completion,
there’s mounting pressure to put a stop to this controversial project.
In August 2020, a Russian political leader and opponent of Vladimir Putin,
Alexei Navalny, was hospitalized after
being exposed to the nerve agent Novichok.
The attempt on his life was allegedly carried out by Russian Federal
Security Service agents on behalf of the Kremlin.
The assasination attempt and Navalny’s subsequent
jailing prompted condemnation from political leaders around
the world and saw widespread calls for increased economic
sanctions on Russia. It also led to renewed calls for German chancellor Angela Merkel
to abandon the Nord Stream 2 project.
So Navalny puts an emphasis on Russia’s mis-deeds and the question is, is Germany
really going to support and again finish the silver platter pipe deal right as Russia
continues to do unacceptable things according to international norms?
Do you think Russia have arrested Navalny to use him as a bargaining chip,
which they wouldn't have had otherwise, that then releases
them from sanctions and gets the deal over the line?
Certainly, Navalny has been a thorn in the side of the Putin administration
for a number of years and these things may not be connected.
What would be interesting though is if a concession, by releasing Navalny, does
help as an alternative to putting sanctions on Russia.
Russsia denies being involved in the assassination attempt of Navlany and
denies that his subsequent arrest was politically motivated.
The Nord Stream 2 gas pipelines run beneath the Baltic Sea alongside the
first Nord Stream pipelines, which were completed in 2011. The pipeline enters the
Baltic near St Petersburg in Russia and stretches 765 miles
along the seabed before coming ashore
again at Greifswald in north-east Germany. The new pipelines, which are due to begin
operating in early 2021, can carry 55 billion cubic meters of gas per year, potentially
doubling the capacity of gas which can be pumped directly to Germany from Russia.
While the Nord Stream 2 project is funded by a consortium of five European energy
companies from France, Austria, Germany, Britain and the Netherlands,
Russian majority state-owned energy company Gazprom is the sole stakeholder.
For Russia, how important is Nord Stream 2?
There are commercial interests here at play that Gazprom
wants to monopolise and there is a fear that now
increasing exports of LNG are challenging the position of Gazprom.
The $11 billion project has, however, faced widespread criticism ever since
the deal was inked in 2015. Much of the opposition stems from the U.S., which
worries that the new pipe will expand the Kremlin’s influence in the region, while
several central and eastern European countries, are also concerned about
growing dependence on Russian energy.
Another country strongly opposed to the project is Ukraine, which has been in a
protracted conflict with Russia since 2014. Before the completion of the first Nord
Stream pipelines, 80% of gas supplied by Russia to the EU went through the country.
However, the gas supply wasn’t always reliable due to long standing disputes
between the two neighbors. While the Nord Stream projects are set to ensure a
steady supply of gas to the EU, Ukraine stands to lose lucrative transit fees.
We’ve had a situation of a political stand-off between the two countries and
they’re very keen to channel gas towards Europe
through any other routes that they can.
Even though Nord Stream 2 has been dubbed
the pipeline for “Europe's energy future,”
Germany stands to reap the biggest rewards from the project.
Lower wholesale gas prices would give a significant boost to businesses
and consumers in the country.
That’s why many analysts believe that German chancellor Angela Merkel and
her government are keen to ensure that the pipeline is viewed as a commercial
project, entirely separate from politics.
Many in the German political establishment don't see
that it is worth pulling the plug on
a project that for political or economic reasons they find potentially beneficial
and I think the hope is that Germany's neighbours are going to move on.
They did with opposition to Nord stream one and they assume
that the same thing will happen now.
But the biggest obstacle to the pipeline is the U.S. As far back as 1981, the
Reagan administration imposed sanctions on a similar pipeline project from Russia
to Europe. As Nord Stream 2 nears completion, history is repeating itself.
The Obama and Trump administrations deemed the pipeline a geopolitical threat,
and towards the end of 2019, the U.S. passed sanctions targeting companies
involved in the development in an attempt to scupper its completion.
Allseas, a Swiss firm specialising in undersea construction, immediately
buckled under the threat of sanctions and pulled its vessels from the project,
halting construction for a year and costing Gazprom a fortune.
Many other international companies were also deterred.
In the United States, the question of European gas pipelines is a foreign
policy question. In the last few years it has been portrayed more as an
economic question but we had sanctions against companies building
the pipelines to Germany in the early eighties from the United States.
So this is a story that really isn’t a news story but a story that is coming up again.
So the US has a stance that this interaction between Europe and Russia
- this inter-dependence on gas is a strategic liability
and that it makes Europe more vulnerable.
At the start of 2021, the U.S. Congress expanded its sanctions net to include
insurers, certifiers and any companies supporting ‘pipe-laying activities’.
As a result, 18 European companies have pulled out of the project so far.
The majority are companies insuring the project, but also civil engineering
companies responsible for running the pipeline’s monitoring and safety systems.
Russia is trying to counter the sanctions dragnet by increasing its stake in the
development infrastructure, allowing it more control over the construction, free
from the threat of U.S. interference. While this may mean they can finish
laying the pipe, certifying the project to meet international safety standards
isn’t something Russia can pull off on its own.
One of the major issues is that the main certification company, DNV,
withdrew from the project. Now this project has all been built to those
standards of that certification company and we think that without that type of
certification it may become difficult for any European regulator to
actually allow flows through that pipeline.
Supporters of Nord Stream 2 also claim that the U.S. has rather
more selfish reasons for opposing its construction. For years, the
U.S. has been trying to sell more of its own liquified natural gas to
the EU. One of Nord Stream 2’s most outspoken critics is Texan
senator Ted Cruz, a major recipient of oil and gas political donations.
For Russia, the delays and possible cancellation of Nord Stream 2 would
deal a catastrophic blow to both its geopolitical ambitions and economy.
Gazprom’s gas sales to Europe make up nearly 70% of its gas revenues,
while the company’s overall sales account for more than
5% of Russia’s $1.6 trillion annual GDP.
Russia doesn’t have an incredibly diversified economy and it has
needed to sell a lot of its fossil fuels to Western Europe which
is the closest market, its main market for decades now. Really
to keep the country functioning. It can do so through existing
infrastructure but by having new pipelines it really entangles Western
Europe into a longer term relationship with Russia.
It also creates the ability to have lots of new contracts.
After four years of fractured ties under Trump, the Biden administration
is keen on mending relationships with Berlin and its European allies.
However, the sanctions imposed by the U.S. remain an affront to
the Europeans for what is considered a domestic affair.
For now, German politicians are working to find a compromise with
the Biden administration that avoids sanctions.
One possible solution is a “snapback mechanism” that
mandates closure of the Nord Stream pipelines if Russia threatens Ukraine.
Germany point to legislation signed by Russia which says
they will not circumvent Ukraine. How strong is that?
Whether Germany will really be in a position to push Russia back
on that, we will have to see but the German position is, we are a strong
and important buyer, we are a geopolitical weightful
country and we can push back here.
Even as Berlin tries to reduce the uncertainty surrounding
Nord Stream 2, the country’s approaching general elections,
scheduled for September 2021, makes the project a domestic political hot potato.
There’s a strong chance that the German Green Party could enter government
through a coalition with the conservative CDU, which could
further complicate the project’s completion.
As the project enters its final stages, many stakeholders are watching
developments in the U.S. strategy closely, as tightening or easing of sanctions could
determine the fate of the project. While the economic costs would hit Gazprom
and the Russian state hardest, the impact
will be felt across the continent. The successful
completion, or final abandonment, of Nord Stream 2 could define Europe’s energy
strategy, and geopolitical relations with Russia
and the U.S., for many years to come.
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