NORD STREAM 2: MYTH VS. FACT

Five Nord Stream 2 Arguments That Are Demonstrably False
 

In a recent article for the European Council on Foreign Relations (ECFR), Gustav Gressel argued that German officials had handled the controversial Nord Stream 2 (NS2) project with “unilateralism and clumsiness...” Gressel maintained that Berlin had plowed on with this deeply flawed project, which harms Germany and its allies, despite protests from the European Union, other European capitals, and U.S. opposition. The article caused controversy because a senior German Foreign Office official requested an apology from ECFR for characterizing Berlin’s position in support of Nord Stream 2 as “lies.”

Often, German officials have deployed arguments
resembling those employed by the Kremlin to support the NS2 project, even though there is no evidence they are the direct result of Moscow’s information operations. This author agrees with Gressel that the use of such messaging is extremely damaging to German credibility on energy issues and more broadly both to its relationships with the European Union and the United States.

Overall, the German policy debate relies upon 
five key arguments in support of NS2, each of which are demonstrably false. They include: 

Message 1: Nord Stream 2 is purely a commercial project. 

To regard the pipeline primarily as a business venture, as claimed by many German and Russian officials, one has to ignore the fact that the Russian state is a majority shareholder of Gazprom, which in turn is Nord Stream 2’s owner. Thus, the pipeline inevitably will fulfill Russian foreign policy objectives, which include maintaining energy as a potential weapon against Europe, keeping Ukraine within Russia’s sphere of influence, or undermining its existence entirely as a sovereign state. Since Nord Stream 2 would bypass Ukraine, a country with which Russia is at war, Kyiv will lose $3 billion in energy transit fees, close to 10 percent of its annual budget. Ukraine will consequently be economically weaker and, because it is no longer a transit country, more isolated and significantly less important to the EU.

The case for NS2 also is undermined by the fact that building gas pipelines on land is much cheaper than building them underneath the sea. If Nord Stream 2 truly were a commercial project, the Kremlin would have taken advantage of one of the alternative, much cheaper land-based options – building a second Yamal pipeline, for example, or developing a route via the Baltic States (the so-called Amber pipeline).

Moreover, even if a sea-based project were cheaper than a land-based project, no decision based primarily on commercial grounds would place Nord Stream 2 next to Nord Stream 1. This co-location would put 70 percent of Russian gas exports in a single narrow channel two kilometers wide in the shallow Baltic Sea and would be a clear risk to the security of European energy supply. The reason for such planned close proximity is therefore not commercial but political. If the same route as Nord Stream 1 was not followed for the new pipelines, Nord Stream 2 would be forced into the exclusive economic zones and territorial seas of the Baltic States and Poland.


Message 2: Since gas production in Europe is declining, the EU needs more Russian gas.

Another argument deployed by Nord Stream 2 advocates is that the EU needs Nord Stream 2 because its gas production is falling. This “Groningen lever” argument (Groningen is the largest and most significant landward field in Europe) is used to justify Nord Stream 2 on the grounds that EU domestic gas production is declining. British and Dutch North Sea gas production is decreasing, and Groningen will close in 2030 following recurring earth tremors over the last few years. Nord Stream 2, however, is not intended to replace that lost gas production. Nord Stream 2 is a diversionary pipeline, not a source of new supply. As with Nord Stream 1, it will replace natural gas that transits through Ukraine’s Brotherhood pipeline network with that natural gas instead flowing through Nord Stream 2.

Furthermore, the natural gas flowing through Nord Stream 2 will not flow in significant quantities to countries such as the Netherlands, Belgium, and the western parts of Germany affected by the accelerated closure program of the Groningen field. Instead, the connecting pipeline for Nord Stream 2, EUGAL, heads not westwards, but eastward, where it can flood the markets of Central and Eastern Europe. EUGAL has the capacity (55bcm) to take the entire gas flow of Nord Stream 2. In addition, there is further capacity for taking Nord Stream 1 gas in the OPAL pipeline of up to 36bcm in the same direction. Gazprom, therefore, can push over 90bcm of gas into the region. It also can flood the market, disincentivizing other operators from building any competing infrastructure or offering any price competition.


Message 3: Nord Stream 2 supports EU energy liberalization.

Nord Stream 2 is not a pro-liberalization measure. Rather than opening up markets to competitors it both reduces competition and choice for consumers. Letting Gazprom use Nord Stream 2 to bring more gas into the heart of Europe will further increase its market power in Germany and Central Europe. What is more, NS2 would reduce investment incentives to build new pipelines and obtain new sources of supply in CEE states. This would further lock-in Gazprom’s dominance.

Furthermore, because most of the Nord Stream 2 gas will flow eastward via the EUGAL connecting pipeline, that gas will flood the west-to-east gas interconnectors cutting off Central and Eastern Europe from the more liberalized Western market. Meanwhile, the principal alternative flow of natural gas from the Ukrainian Brotherhood transit network will become extremely limited or dry up altogether. The effect is to not only enhance Gazprom’s market dominance but split the EU single market in gas into an open market western half, and a Gazprom-dominated eastern half. Such a result would be far from the EU’s goal of creating a single liberalized European gas market where gas can be sold competitively by a large number of suppliers and resellers.


Message 4: Russia is a reliable energy supplier. 

Although Russian gas has flowed more or less uninterruptedly into Western Europe since 1967, a deeper look into the way Russia has treated CEE and the Baltic states recent years suggests the Kremlin is willing to use gas cutoffs to advance its foreign policy objectives. As Larsson points out in his major work on this issue for the Swedish Defense Research Agency—“Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier” —Russia enacted at least 40 politically motivated energy cutoffs across the region between 1991 and 2004. More recently, in 2014 and 2015 Gazprom threatened to cut gas flows to Hungary, Poland, and Slovakia if they supplied energy to Ukraine.

Message 5: Ukraine is an unreliable energy supplier. 

Conversely, it is something of a stretch for Gazprom and its Western corporate allies to argue that Ukraine is an unreliable energy supplier. In view of Gazprom’s recent severing of gas flows to EU Member States on two occasions, Moscow’s claim of Ukrainian unreliability—one argument that underpins the argument for Nord Stream 2—overlooks not only Russian unreliability but the fact that since 2009, transit of gas flows across Ukraine have been stable despite invasion, annexation, and significant economic and political turmoil. Furthermore, Ukraine has joined the Energy Community and pledged that it would comply with EU energy liberalization rules.

It appears from the reaction to Gressel’s article that there are still senior German officials who do not appreciate how damaging their NS2 messaging is to transatlantic and EU cohesion. Using justifications in support of the project that parallel Russian arguments undermine Berlin’s credibility with its European allies and the United States. It also makes it difficult to have a dialogue with Berlin. The effect is to further isolate Germany from the rest of the European Union and from the United States. That may well be the ultimate Russian objective, but it is surely not in the interests of Germany, the European Union, or the West as a whole.

Europe's Edge is an online journal covering crucial topics in the transatlantic policy debate. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis. 

Photo: "A piece of Nord Stream pipe on public display in Kotka, Finland" by Vuo under CC BY 4.0.

Dr. Alan Riley is a Senior Fellow at the Institute for Statecraft, Temple Place in London.



 

Alan Riley
07 March 2019

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